a

GAO

United States Government Accountability Office

Report to the Chairman, Committee on 

Homeland Security and Governmental 

Affairs, U.S. Senate

December 2005 U.S. POSTAL 

SERVICE

Purchasing Changes 

Seem Promising, but 

Ombudsman 

Revisions and 

Continued Oversight 

Are Needed

GAO-06-190
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2005

U.S. POSTAL SERVICE

Purchasing Changes Seem Promising, 

but Ombudsman Revisions and 

Continued Oversight Are Needed 

Highlights of GAO-06-190, a report to the 

Chairman, Committee on Homeland 

Security and Governmental Affairs, U.S. 

Senate 

Purchasing makes up a significant

portion of annual expenses for the 

U.S. Postal Service (USPS). USPS

has recently made significant 

changes to its purchasing 

regulations which, according to 

USPS, will result in a more

businesslike purchasing process. 

Some stakeholders, including 

smaller suppliers who stated they 

rely on USPS for the majority of 

their business, have raised

concerns about these changes. 

GAO was asked to (1) describe

these changes, stakeholder views,

and USPS’s rationale for the 

changes and (2) assess how these 

changes reflect the principles of

postal reform and practices of 

leading organizations and identify 

areas, if any, for continued 

oversight. 

USPS has recently taken actions to streamline its purchasing regulations. 

The three main changes are (1) revoking and superseding its former 

purchasing regulations, handbooks, circulars, manuals, and guidelines and 

replacing them with streamlined regulations and interim internal guidance;

(2) establishing new provisions for entering into business relationships with 

suppliers, including the process for declining to accept or consider 

proposals; and (3) creating a new process for resolving disputes, 

disagreements, or arguments between USPS and suppliers/potential 

suppliers, including the establishment of an ombudsman. Some postal 

stakeholders stated these were positive changes, while others raised 

concerns about the need or justification for such major changes; potential 

limitations on suppliers’ ability to appeal USPS decisions; and how USPS 

officials would be held accountable for the fairness of purchasing decisions 

and its results (i.e., ability to achieve cost savings) given this additional 

flexibility and discretion. USPS stated these changes would result in a more 

flexible, efficient, businesslike purchasing system. 

GAO assessed USPS’s new postal purchasing regulations and draft internal 

guidance against key principles of postal reform—flexibility, efficiency,

accountability, and social responsibility—and the purchasing practices of 

leading organizations. GAO found that USPS’s changes are generally 

consistent with these principles and practices of leading organizations, 

except for USPS’s new ombudsman position (see table below). 

How USPS’s Changes Reflect Key Principles and Leading Practices 

Reflect 

• Flexibility: Provides more flexibility 

when updating its policies and

procedures to respond to changes in

market condition. 

• Efficiency: Emphasizes efficiency, 

including leveraging its buying power. 

• Social responsibility: Promotes the 

use of a diverse supplier base and 

ethical behavior. 

• Accountability: Plans to establish 

goals and methods for measurement. 

Do Not Reflect 

• Ombudsman: Its role, structure, and 

decision-making authority are not 

consistent with leading ombudsman 

practices of independence and

impartiality. Inconsistencies include 

the reporting relationship (reports to 

head of USPS purchasing 

organization) and decision-making 

authority (issues binding decisions 

rather than recommendations). 

Source: GAO.

In addition to the ombudsman inconsistencies, concerns remain about how 

USPS’s purchasing changes will be implemented. These concerns relate to 

the delayed issuance of USPS’s final guidance, the potential impact on 

suppliers and USPS’s ability to track and monitor its performance, and 

USPS’s ability to achieve efficiencies under these new flexibilities while 

ensuring the fair and consistent treatment of suppliers. These 

inconsistencies and concerns will require continued oversight. 

What GAO Recommends

To address inconsistencies in 

USPS’s ombudsman, GAO is 

recommending that the Postmaster 

General revisit the intended

purpose for its ombudsman,

consult with experts to determine 

other options, and make the 

necessary changes in its 

regulations and guidance to 

conform with leading principles

and practices. GAO provided a 

draft of this report to USPS for its

review and comment. USPS

generally agreed with our findings

and recommendations and stated 

that it will reassess its 

ombudsman’s role and reporting 

relationship.

www.gao.gov/cgi-bin/getrpt?GAO-06-190.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine 

Siggerud at (202) 512-2834 or 

siggerudk@gao.gov. 
Page i GAO-06-190 U.S. Postal Service

Contents

Letter 1

Results in Brief 4

Background 6

USPS Actions to Improve its Purchasing Process, Rationale for 

Changes, and Stakeholder Views of These Changes 10

USPS’s Purchasing Changes Are Generally Consistent with Key 

Reform Principles and Practices, Except Those Related to the 

Ombudsman 22

USPS’s Purchasing Changes Are Generally Consistent with 

Principles and Practices of Leading Organizations 30

USPS’s Ombudsman Regulatory Provisions and Guidance Are Not 

Consistent with Leading Ombudsman Principles and 

Practices 35

Continued Oversight of USPS’s Implementation of Its New 

Regulations Is Needed 40

Conclusions 43

Recommendations for Executive Action 44

Agency Comments and Our Evaluation 44

Appendixes

Appendix I: Objectives, Scope, and Methodology 46

Appendix II: Selected Federal Laws Applicable to USPS Purchasing 48

Appendix III: USPS Revised Purchasing Regulations—Provisions 

Governing the Acquisition of Goods and Services 50

Appendix IV: Comments from the U.S. Postal Service 52

Appendix V: GAO Contact and Staff Acknowledgments 53

Tables Table 1: USPS Procurement and Purchasing Developments 7

Table 2: Provisions of USPS’s Revised Purchasing Regulations 11

Table 3: USPS Prime Contract Commitments with Small, Minority-, 

and Women-Owned Businesses, Fiscal Years 2000-2004 33

Table 4: USPS Compilation of Selected Federal Laws That Apply to 

USPS Purchasing 48

Figures Figure 1: USPS Purchasing Spending for Fiscal Year 2004 10

Figure 2: USPS’s Changes to Its Purchasing Regulations and 

Guidance 13
Contents

Page ii GAO-06-190 U.S. Postal Service

Abbreviations

ABA American Bar Association

ADR Alternative Dispute Resolution

ADRA Administrative Dispute Resolution Act

FAA Federal Aviation Administration

FAR Federal Acquisition Regulation

NASA National Aeronautics and Space Administration

OMB Office of Management and Budget

USPS United States Postal Service

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Page 1 GAO-06-190 U.S. Postal Service

United States Government Accountability Office

Washington, D.C. 20548

A

December 15, 2005 Letr

The Honorable Susan M. Collins

Chairman, Committee on Homeland 

Security and Governmental Affairs

United States Senate

Dear Chairman Collins:

The U.S. Postal Service (USPS) has one of the largest procurement, also 

referred to as purchasing, functions in the federal government. In fiscal 

year 2004, it purchased nearly $11.5 billion in goods and services. USPS has 

a nationwide network of over 21,000 suppliers that include large, small, 

minority-, and women-owned businesses that provide goods and services 

such as mail sorting and scanning equipment, airmail transportation, and 

mail delivery. Some of the smaller suppliers have stated that they rely on 

USPS exclusively for their business. 

In recent years we have reported and testified on the significant financial 

and operational challenges facing USPS and, in 2001, we placed its 

transformation and long-term outlook on our high-risk list.1

 The President 

and Congress have also recognized these challenges. In 2002, the President 

established a commission to examine the future of USPS, and the 

commission’s 2003 report included a recommendation that USPS revise its 

purchasing regulations to maximize flexibility and to reflect commercial 

best practices.2

 Recent legislation has been proposed to modernize and 

reform the postal laws of the United States. Included in postal reform 

legislation introduced during 2005 are provisions expressing the sense of 

Congress that the USPS’s purchasing policies should ensure the fair and 

consistent treatment of suppliers and contractors while implementing 

commercial best practices to achieve greater efficiency and cost savings, 

and directing that Congress be provided a report on the number and value 

1

The high-risk list identifies federal programs or operations that are highly vulnerable to 

waste, fraud, abuse and mismanagement or that require urgent attention to ensure that the 

government functions in the most economical, efficient, and effective manner possible. 

GAO, U.S. Postal Service: Transformation Challenges Present Significant Risks, GAO-01-

598T (Washington, D.C.: Apr. 4, 2001) and GAO, U.S. Postal Service: Financial Outlook and 

Transformation Challenges, GAO-01-733T (Washington, D.C.: May 15, 2001).

2

The President’s Commission on the United States Postal Service, Embracing the Future: 

Making the Tough Choices to Preserve Universal Mail Service (Washington, D.C.: July 31, 

2003).
Page 2 GAO-06-190 U.S. Postal Service

of contracts and subcontracts that USPS has with small, minority-, and 

women-owned businesses.

A key component of postal reform is increasing USPS’s flexibility to 

operate in a more efficient, businesslike manner, while providing 

appropriate accountability and oversight to ensure fair and transparent 

operations. In 1970, Congress passed legislation that gave USPS a unique 

status as an independent establishment of the federal government, 

authorized USPS to operate more like a business, and exempted it from 

specific categories of laws that are generally applicable to other federal 

agencies including “Federal law[s] dealing with public or Federal contracts, 

property, [or] works, . . .” (39 U.S.C. §410(a)). As a result, USPS has not 

been subject to most federal laws and regulations applicable to most 

federal purchasing, including the Competition in Contracting Act and the 

Federal Acquisition Regulation (FAR).3

 Congress, however, has applied 

certain purchasing-related requirements to USPS that apply to other federal 

government contracts but are not applicable to private entities. For 

example, USPS is required to follow both the Service Contract Act, which 

requires that service employees be paid no less than prevailing wages in the 

locality, as well as the Davis-Bacon Act, which requires payment to 

employees of contractors on the site of federal government construction 

projects to be paid no less than prevailing wages in the locality. This 

uniqueness has sometimes generated tension in the expectations of postal 

stakeholders as to whether USPS should be required to follow more 

traditional federal agency procurement practices or those of private 

companies. In a number of respects, the differences in the procurement 

practices of leading public and private organizations are diminishing as 

both strive to create more efficient procurement systems by taking 

advantage of best business practices to lower costs and maximize service 

and value, while also holding management accountable for its performance 

3

The Federal Acquisition Regulations system establishes the uniform set of policies and 

procedures for acquisition by all executive branch agencies. This system consists of the 

FAR, which is the primary document, and agency acquisition regulations that implement or 

supplement the FAR. The Competition in Contracting Act of 1984, Pub. L. No. 98-369, sect. 

2701, establishes, among other things, the federal policy of “full and open competition” for 

most federal contracts. The USPS has adopted, instead of a policy of “full and open 

competition,” a policy of “adequate competition,” which the Procurement Manual defined 

as “the solicitation of a sufficient number of qualified suppliers to ensure that the required 

quality and quantity of goods and services is obtained when needed and that the price is fair 

and reasonable.” This allowed postal contracting officials to limit competition to selected or 

prequalified bidders.
Page 3 GAO-06-190 U.S. Postal Service

and ensuring that contracting decisions are made in a socially responsible, 

ethical manner. 

For almost two decades, USPS has focused on changing its purchasing 

processes to become more businesslike, most recently by incorporating 

what are called “supply chain management” principles and practices to 

obtain the best value for property, goods, and services to meet USPS’s 

needs at a fair and reasonable price. Supply chain management is a process 

used to integrate the flow of goods and services from suppliers to the end 

customer and has helped successful private-sector companies leverage 

their buying power and identify more efficient ways to procure goods and 

services. 

In March of 2004, USPS issued a proposed rule and requested public 

comment on changes to its purchasing regulations. USPS’s goal was to 

streamline its purchasing regulations to make them more efficient and 

businesslike. USPS’s final rule, which became effective in May 2005, 

revised some provisions contained in the proposed rule but retained the 

focus of the proposed rule. The final rule revoked hundreds of pages of 

legally-binding regulations contained in its Purchasing Manual and 

replaced them with nine pages of legally-binding regulations codified at 39 

C.F.R. Part 600 and accompanying nonbinding internal guidance. USPS 

plans to replace the interim guidance with its new Supplying Principles and 

Practices early in calendar year 2006. Concerns have been raised about 

these revisions by some postal stakeholder groups and suppliers, 

particularly about whether such a significant overhaul of the previous 

regulations was needed and the potential effects on efficiency, 

accountability, and fairness. As such, you asked us to (1) describe the 

changes USPS made to its purchasing regulations, stakeholders’ views of 

the changes, and USPS’s rationale for the changes and (2) assess how its 

purchasing changes (both its new regulations and draft guidance) reflect 

the principles of postal reform and the purchasing practices of leading 

organizations and identify areas, if any, for continued oversight. 

To describe the major changes to USPS’s purchasing regulations, 

stakeholders’ views of the changes, and USPS’s rationale for the changes, 

we reviewed various documents, including the proposed and final 

regulations published in the Federal Register; USPS’s Purchasing Manual 

and other procurement handbooks, instructions, and circulars; laws and 

legislative history of postal reform; and stakeholder comments on the 

proposed changes to USPS’s purchasing regulations. We also interviewed 

USPS officials to gather information on their rationale behind the changes 
Page 4 GAO-06-190 U.S. Postal Service

and other selected stakeholders and suppliers, some of whom submitted 

formal comments on USPS’s proposed rule. To assess how these changes 

reflect the principles of postal and procurement reform, we identified key 

principles of efficiency, flexibility, accountability, and social responsibility 

based on various information we analyzed, including our past GAO reports 

on postal and procurement reform; the report of the President’s 

Commission on the United States Postal Service (Commission) report; 

proposed postal reform legislation; and interviews and documents from 

organizations with expertise in purchasing reform and the ombudsman 

process. We compared USPS’s changes in the Final Rule, along with its 

draft Supplying Principles and Practices guidance, with the practices of 

leading public and private organizations. We determined that USPS’s data 

on contract spending were sufficiently reliable for the purposes of our 

review. We requested comments on a draft of this report from USPS, and its 

comments, which are reproduced in appendix IV, are discussed later in the 

report. Our work was conducted from April 2005 to December 2005 in 

accordance with generally accepted government auditing standards. 

Results in Brief USPS made changes to its purchasing regulations to create a more efficient 

businesslike approach to its purchasing, which have raised concerns from 

some stakeholders about these actions. The three main areas of change in 

USPS’s new purchasing regulations are (1) revoking and superseding its 

former purchasing regulations, procurement handbooks, circulars, and 

instructions, and replacing them with streamlined regulations and interim 

internal guidance; (2) establishing new provisions for entering into 

business relationships with suppliers, including the process for declining to 

accept or consider proposals; and (3) creating a new process for resolving 

disagreements, disputes, or protests between USPS and suppliers/potential 

suppliers, including the establishment of an ombudsman. While many 

postal stakeholders recognize the need to promote an efficient 

procurement process, some suppliers, including smaller suppliers who 

stated they rely on USPS for the majority of their business, have raised 

concerns about these changes. In particular, concerns included the 

justification for such a significant change (e.g., revoking most of USPS’s 

purchasing regulations and replacing them with nonbinding guidance, 

which could reduce suppliers’ basis for appeal of USPS decisions) and 

whether such a regulatory change was needed to achieve further cost 

reductions. Stakeholders also raised concerns about how USPS contracting 

practices would change under the new regulations since USPS had not 

completed its final guidance detailing the principles and practices to be 

followed at the time the new regulations were implemented. Stakeholders 
Page 5 GAO-06-190 U.S. Postal Service

stated that the subjectivity and lack of detail associated with USPS’s new 

regulations would make it difficult to hold USPS purchasing officials 

accountable for their decisions. Further, while some stakeholders 

acknowledged that the ombudsman may be a more efficient way of 

resolving disagreements, some raised concerns about how independence 

and impartiality would be maintained in this process. According to USPS 

officials, the regulatory changes would create a more flexible, businesslike 

approach to purchasing; implement the acquisition portions of its 

Transformation Plan and the Commission’s report; and help it to lower 

costs and improve customer service. USPS officials told us that under its 

prior purchasing rules, contracting officers were restricted in their 

decision-making abilities due to cumbersome and inflexible rules.

USPS’s revised regulations and draft guidance are generally consistent with 

principles and practices of leading organizations, except for USPS’s new 

ombudsman provision, which is inconsistent with key principles of 

independence and impartiality, and raises issues about the credibility of 

USPS’s disagreement resolution process. USPS’s actions to address this 

inconsistency, as well as other areas of concern, warrant continued 

oversight. We assessed USPS’s new postal purchasing regulations and draft 

guidance against key principles of postal reform—flexibility, efficiency, 

social responsibility, and accountability—and the purchasing practices of 

leading organizations. USPS’s changes to its regulations provide flexibility 

that should enhance the discretion of contracting officers when making 

decisions. The revised regulations may also provide opportunities for USPS 

to achieve cost reductions when adhering to leading practices, such as 

leveraging the organization’s buying power to find more efficient ways of 

purchasing goods and services. USPS’s draft guidance also includes key 

principles related to social responsibility such as avoiding conflicts of 

interest, promoting positive supplier relationships, encouraging support for 

small, minority-, and women-owned businesses, and ensuring transparency 

in financial dealings. USPS’s draft guidance states that USPS will establish 

goals and metrics to hold its professionals accountable that will be specific, 

measurable, and results-oriented and will be used to assess and reward 

performance. USPS’s Vice President of Supply Management also stated that 

goals and measures have been established related to expected cost savings 

and cost avoidances for each major purchasing category. We are 

concerned, however, about USPS’s regulatory change related to its new 

ombudsman, because its role, decision-making authority, and structure are 

not consistent with key principles or practices of independence and 

impartiality embodied by leading ombudsman organizations. Specifically, 

the inconsistencies include the role of USPS’s ombudsman as a final 
Page 6 GAO-06-190 U.S. Postal Service

decision maker, which is different from other public and private sector 

ombudsman who generally make recommendations, and the reporting 

relationship of USPS’s ombudsman—USPS’s ombudsman is internal to the 

Supply Management organization and reports to the head of USPS’s Supply 

Management organization. This type of relationship is not consistent with 

the principles of independence and impartiality and raises the potential for 

conflicts of interest. In addition to these inconsistencies, other concerns 

remain regarding the implementation of these purchasing changes. These 

concerns relate to uncertainty associated with the delayed issuance of 

USPS’s final guidance, the potential impact of these changes on the number 

of suppliers and USPS’s ability to track and monitor performance in this 

area, and USPS’s ability to effectively balance key principles of postal 

reform of increasing flexibility and efficiency in its purchasing practices 

while ensuring fair and consistent treatment of suppliers. These 

inconsistencies and concerns will require continued oversight as USPS 

implements its new purchasing regulations. 

As such, we recommend that USPS needs to revisit and revise the 

ombudsman provisions in the regulations to better reflect key principles 

and practices of leading organizations. We provided a draft of this report to 

USPS for its review and comment. USPS generally agreed with our findings 

and recommendations and stated that it will reassess its ombudsman’s role 

and reporting relationship. 

Background Prior to 1970, USPS’s purchasing policies adhered to federal practices 

prevailing at the time. The Postal Reorganization Act of 1970 established 

USPS as an independent entity of the executive branch and provided it with 

flexibilities to operate in a businesslike manner and be self-supporting from 

postal revenues. The 1970 act attempted to eliminate legislative, budgetary, 

and financial policies that were inconsistent with efficient modern 

management and business practices. The act exempted USPS from many 

federal laws and regulations. In particular, USPS was generally exempted 

from key procurement laws and regulations, such as the FAR. Although 

exempt from many federal laws and regulations, USPS contracts are still 

subject to certain federal laws including the Contract Disputes Act, and 

USPS’s Supply Management program activities, like other postal program 

activities, are subject to program plans pursuant to the Government
Page 7 GAO-06-190 U.S. Postal Service

Performance and Results Act.4 See appendix II for examples of these laws 

as identified by USPS.

Since the passage of the Postal Reorganization Act, USPS officials stated 

that USPS’s purchasing policies have gone through many changes and 

iterations in an effort to follow procurement developments in the private 

sector, streamline the acquisition process, and reduce purchasing costs. 

Table 1 shows a time line of these changes. 

Table 1: USPS Procurement and Purchasing Developments

4

Provisions with regard to administrative resolution of disputes added to the Contract 

Disputes Act by the Administrative Dispute Resolution Act (ADRA) are applicable to USPS.

Date Event

Pre-1970 Post Office Department - Purchasing policy was controlled by the Federal Procurement Regulation, the precursor of the 

FAR.

1970 Postal Reorganization Act - Established USPS, provided it with flexibility in its purchasing practices, and exempted it 

from key federal procurement laws.

1971 Postal Contracting Manual - Incorporated by reference into the Code of Federal Regulations. 

1987 Procurement Manual - Developed to simplify policy with the goal of combining advantageous aspects of public and 

private sector procurement. USPS decentralized purchasing authority to provide contracting officers more flexibility in 

making procurement decisions.

1988 Procurement and Supply Department’s Plan for Improvement - Evolved from five studies addressing practices and 

performance of procurement and supply operations. This plan focused on enhanced customer service, shorter 

customer response time, and lower total cost.

1990 Phase I of Plan for Improvement - Concentrated on projects to upgrade the professionalism of the procurement and 

supply workforce and enhance the efficiency and effectiveness of policies, systems, processes, and structure.

1992 Phase II of Plan for Improvement - Focused on projects to enhance customer satisfaction by emphasizing fast 

response, quality service, and adding value to the buying process.

1995 Consolidation of all purchasing responsibilities in purchasing, facilities, and transportation areas - Placed purchasing 

and supplying responsibilities in the Purchasing and Materials organization and gave the Vice President of the 

Purchasing and Materials organization responsibility for all purchasing policies. Established qualification standards for 

contracting officers and made contracting officer and purchasing specialist full-time positions.

1995 Procurement Manual revised and reissued as Procurement Manual Transmittal Letter 8 - Established uniform 

contracting officer qualifications, training requirements, and professional development standards. This letter focused on 

empowering contracting officers with greater decision-making authority and responsibility.

1996 Purchasing and Materials Organization strategic plan - Developed strategy to integrate supply chain management 

aimed at focusing on improving policies, procedures, and information systems to meet business and competitive needs.

Jan. 1997 Purchasing Manual, Issue 1 (successor to Procurement Manual) – Effective and transition begins. The manual 

empowered purchasing professionals with discretion to team with internal business partners so that each purchase 

meets the business and competitive objectives of USPS.
Page 8 GAO-06-190 U.S. Postal Service

Source: USPS.

In the last decade, USPS has been implementing supply chain management 

initiatives that, according to USPS officials, are consistent with leading 

practices of the private sector. In 1997, USPS significantly revised its 

purchasing policies to emphasize cross-functional purchase teams that 

were given more discretion to form effective partnerships with suppliers. 

The goal was to use process management, data analysis, and other business 

practices to help implement supply chain management throughout USPS 

purchasing and material management. USPS also restructured its 

Purchasing and Materials organization to better align it with supply chain 

management best practices. This organization established five commoditybased teams (facilities, mail equipment, services, supplies, and 

transportation) with the goal of assembling and centralizing commodityspecific expertise and leveraging USPS’s buying volume to decrease costs. 

In addition, USPS began emphasizing professional development to 

facilitate the transition to supply chain management best practices. This 

included changing training to focus more on the private sector and 

certifying its employees in either purchasing or materials management 

disciplines.

In its 2002 Transformation Plan, USPS described its strategy for supply 

chain management and modernizing purchasing procedures as focusing 

resources on lowering overall cost and furthering competitive and business 

objectives. The Transformation Plan described how USPS planned to 

1998-2001 Purchasing and Materials Organization - Identified 23 core competencies needed to ensure USPS had skilled supply 

chain management professionals.

Jan. 2000 Purchasing Manual, Issue 1 – Transition period ends. 

2001 e-Business Strategy for USPS Supply Chain Management, 2002-2010 - Assessed current business and developed 

options to align supply chain management e-business strategy with corporate and functional strategies.

Jan. 2002 Purchasing Manual update, Issue 2 - Added a section on the supply chain management philosophy and its importance 

to USPS purchasing. 

July 2002 Purchasing and Materials organization becomes Supply Management – USPS restructured its purchasing organization 

to better align the organization with supply chain management best practices.

Dec. 2003 Purchasing Manual update, Issue 3 – Became effective. The manual contained numerous new and significant changes 

in purchasing policy.

March 2004 Proposed rule to amend USPS purchasing regulations - Proposed revision to implement the acquisition portions of its 

Transformation Plan (April 2002) and President’s Commission report (July 2003) - USPS received 20 comments from 

various suppliers.

April 2005 Final Rule revising purchasing regulations - Revoked all former purchasing policies and rules and replaced them with 

streamlined regulations and nonbinding internal guidance.

May 2005 Final Rule – Became effective. 

(Continued From Previous Page)

Date Event
Page 9 GAO-06-190 U.S. Postal Service

implement leading strategies in this area including: process and demand 

management, data analysis, and business practices that focus on strategic 

sourcing. USPS officials said that they then met with various leading 

procurement organizations, both in the public and private sector, to 

support the implementation of its supply chain management strategy. In 

2003, USPS asked IBM to analyze the effectiveness of its supply chain 

management policies and practices by comparing them with commercial 

best practices and to make suggestions as to the improvements needed.5

 

IBM’s December 2003 report suggested that a significant revision of USPS’s 

policies and practices was needed and that USPS should identify the 

philosophies, values, and core procedures it deemed important enough to 

make mandatory and elevate those to the policy level and determine what 

practices are important but do not meet the “policy” criteria. USPS 

responded by reforming its purchasing policies and making this 

distinction—its regulatory changes would streamline its purchasing 

regulations and its guidance related to its purchasing principles and 

practices would be nonbinding. USPS also made improvements in the areas 

of benchmarking, training, manuals and instructions, and organizational 

structure as a result of these external reviews. USPS has reported over $1.4 

billion in cost reductions and cost avoidance from its purchasing activities 

in fiscal years 2000 through fiscal year 2004.

Postal purchasing activities continue to consume a substantial portion of 

postal spending. In fiscal year 2004, USPS spent approximately $11.5 billion 

on its purchasing, which included transportation, supplies, services, 

facilities, and mail equipment. These expenses accounted for nearly 20 

percent of USPS’s total operating expenses. Figure 1 shows that in fiscal 

year 2004, USPS spent approximately $5 billion on transportation, $2.4 

billion for services, $1.3 billion on facilities, $1 billion on supplies, and 

almost $600 million on capital equipment.

5

IBM officials told us that as part of their assessment, they spoke to officials from what they 

considered world-class supplying organizations about what has worked well related to their 

policies and practices to identify leading purchasing principles and practices. IBM’s analysis 

included information from the following organizations: the Institute for Supply 

Management, the Center for Strategic Supply Research, Factiva, McKinsey, Purchasing 

Magazine, Procurement Strategy Council, Honeywell, Nestlé, and Hewlett-Packard. They 

also looked at what has worked well with other federal agencies that are not covered by the 

FAR, such as the U.S. Mint.
Page 10 GAO-06-190 U.S. Postal Service

Figure 1: USPS Purchasing Spending for Fiscal Year 2004

Note: “Other” includes rent, training, and other miscellaneous expenses.

USPS Actions to 

Improve its Purchasing 

Process, Rationale for 

Changes, and 

Stakeholder Views of 

These Changes

USPS has recently taken actions to streamline its purchasing regulations 

including (1) revoking and superseding its former purchasing regulations, 

handbooks, circulars, and instructions and replacing them with 

streamlined regulations and interim internal guidance; (2) establishing new 

provisions for entering into business relationships with suppliers; and (3) 

creating a new process for resolving disputes and disagreements between 

USPS and suppliers/potential suppliers arising in connection with its 

purchasing process (with the exception of claims that arise under the 

Contract Disputes Act or with respect to disputes about debarment, 

suspension, or ineligibility from government contracting), including the 

establishment of an ombudsman. While many postal stakeholders 

recognize the need to promote an efficient procurement process, some 

stakeholders have raised concerns about how the regulations would be 

interpreted and implemented by USPS officials and whether these changes 

would have a negative impact on fairness, consistency, and equal treatment 

of suppliers. According to USPS officials, these changes would streamline 

Source: USPS.

Automated data processing equipment/IT

Capital equipment; other

Fuel, utilities, and communications

Supplies

Facilities

Services

Transportation

Total purchasing spending= $11.5 

.5 .6

.8

1

1.3

2.4

5

Dollars in billions
Page 11 GAO-06-190 U.S. Postal Service

its purchasing process and create a more flexible, efficient, businesslike 

approach to purchasing. 

In March of 2004, USPS published a proposed rule in the Federal Register

that described its plan to amend its purchasing regulations and invited 

comments from interested parties. USPS received 20 responses, some from 

various sized suppliers, as well as membership associations or 

organizations that represent numerous suppliers. In May 2005, USPS 

implemented its revised purchasing regulations (the Final Rule), which 

completely revoked and superseded all of its former purchasing 

regulations. USPS also issued its Interim Internal Purchasing Guidelines, 

which was to be used by USPS contracting officials when making 

purchasing decisions until USPS completes its final guidance, called the 

Supplying Principles and Practices. At that time, USPS Supply Management 

officials told us that the Supplying Principles and Practices would be issued 

in November or December of 2005. USPS in September 2005 then revised 

its estimate and stated that the final guidance would be issued in January 

2006. Currently, the final guidance is being projected by USPS to be issued 

early in calendar year 2006.

Table 2 lists the relevant sections of the Final Rule that were included in the 

Code of Federal Regulations (C.F.R.), and a more detailed explanation of 

each section is provided in appendix III.

Table 2: Provisions of USPS’s Revised Purchasing Regulations 

Source: 39 C.F.R. Part 601.

We reviewed the changes in each section and determined that some 

changes were likely to have greater impact than the others. For example, 

section 601.111 – Interest on Claim Amounts simply restates a provision 

that existed in the now defunct Purchasing Manual. These changes are 

Citations in the C.F.R.

601.100 – Purchasing policy 601.107 – Initial disagreement resolution

601.101 – Effective date 601.108 – Ombudsman disagreement resolution

601.102 – Revocation of prior purchasing regulations 601.109 – Contract claims and disputes

601.103 – Applicability and coverage 601.110 – Payment of claims

601.104 – Postal purchasing authority 601.111 – Interest on claim amounts

601.105 – Business relationships 601.112 – Review of adverse decisions

601.106 – Declining to accept or consider proposals 601.113 – Debarment, suspension and ineligibility
Page 12 GAO-06-190 U.S. Postal Service

very similar to what USPS included in the preamble to the Final Rule as the 

three main categories of comments from stakeholders. We determined that 

there were the following three main areas of change, which we will discuss 

in greater detail:6

• revoking and superseding all former USPS purchasing regulations, 

handbooks, circulars, and instructions and replacing them with 

streamlined regulations and internal nonbinding guidance (section 

601.102);

• establishing new provisions that specify how USPS enters into business 

relationships with suppliers, including USPS’s process for declining to 

accept or consider proposals (sections 601.105 and 106); and 

• creating a new process for resolving disputes, disagreements, or 

protests between USPS and suppliers/potential suppliers, including the 

establishment of an ombudsman (sections 601.107 and 108).

USPS Has Revoked, 

Superseded, and Replaced 

All of Its Former Purchasing 

Regulations

Prior to the Final Rule, USPS’s purchasing decisions were guided by its 

Purchasing Manual; which was incorporated by reference in the C.F.R., 

and its other procedural guidelines, which included Management 

Instructions and handbooks. The Purchasing Manual contained hundreds 

of pages of detailed provisions describing the processes for: purchasing 

planning, supplier diversity, contract pricing, contract administration and 

supplier relations, among other provisions. Since the Purchasing Manual

was incorporated by reference in the C.F.R., its provisions were legally 

binding and carried the full force and effect of law. Suppliers were able to 

contest a USPS contract award to USPS’s General Counsel and/or a federal 

court having jurisdiction over such challenges based on the policies and 

procedures contained in USPS’s Purchasing Manual. Figure 2 shows that 

under the Final Rule, the regulations were revised, and the Purchasing 

Manual was revoked (except as to existing contracts), and was replaced 

with internal guidance which does not have the force and effect of law. As a 

6

Selections were based upon the suppliers’ and other organization’s comments made in 

response to USPS’s proposed rule; USPS’s responses to the concerns raised in the 

comments; and our own analysis. In addition, the three areas selected represent the areas 

where stakeholders voiced the most concerns, and also reflect the three areas covered by 

USPS in its response and in its preamble to the Final Rule published in the Federal Register. 
Page 13 GAO-06-190 U.S. Postal Service

result, the basis for suppliers to challenge USPS award decisions is more 

limited when compared with the previous regulations.

Figure 2: USPS’s Changes to Its Purchasing Regulations and Guidance

Note: According to USPS, the Supplying Principles and Practices will be released early in calendar 

year 2006. Until that time, the Interim Internal Purchasing Guidelines will be used.

The stakeholder comments described below do not apply to the final 

guidance because USPS has not yet issued it. USPS states that this 

guidance will contain information on the supply chain management 

principles and practices that will drive its procurement activities, the use of 

competition and sourcing strategies, the evaluation of proposals, feedback 

on the rationale used to award contracts, and guidance on the avoidance of 

conflicts of interest. 

USPS purchasing regulations that

carry the full force and effect of law Other USPS purchasing guidance

Source: USPS.

Prior to Final Rule

Final Rule

Administrative

Instructions

Management

Instructions

Handbooks

Procedural

guidelines

Supplying

Principles

and Practices

Revised

title 39 C.F.R.,

parts 211

and 601

Purchasing

Manual

Title 39 C.F.R.,

parts 211

and 601
Page 14 GAO-06-190 U.S. Postal Service

Comments on USPS’s proposed regulations came primarily from some of 

USPS’s largest suppliers, as well as organizations representing both large 

and small suppliers. Some of the commenting stakeholders, such as Boise 

Office Solutions, Lockheed Martin, and Northrop Grumman, stated that 

they support and encourage USPS’s desire to operate more effectively and 

implement best business practices of the commercial sector. One of these 

suppliers said that streamlining USPS’s acquisition regulations could be 

appropriate and fundamental to realizing the full benefits of postal reform 

and could result in greater efficiencies. According to another of these 

suppliers, the streamlining would accomplish this by facilitating more 

flexible contract relationships and permitting faster acquisition times, 

which would benefit both the suppliers and USPS.

Other stakeholders who commented, such as Mail Contractors of America, 

Inc., and the Association for Postal Commerce, expressed concerns about 

whether USPS’s rationale for making such major changes has merit, since 

USPS had ample flexibility under its existing legal authority and its 

Purchasing Manual to incorporate best practices. Further, some 

stakeholders were concerned that the lack of defined purchasing policies 

and procedures might create an environment of uncertainty for suppliers, 

as well as potentially lead to inconsistent and contradictory practices and 

contracting decisions. These stakeholders noted that the previous 

regulatory structure provided consistent and transparent procurement 

policies and procedures. For example, suppliers stated that prior to the 

Final Rule, they knew USPS’s policies regarding soliciting proposals, 

contract administration, supplier diversity, and how competition and/or 

sole sourcing would be used in procurement actions. In USPS’s proposed 

rule, it had not yet completed or released information on how it would 

conduct these functions under its new regulations. As such, some of the 

suppliers stated that this uncertainty would make it difficult for them to 

know how USPS is making purchasing decisions and how USPS officials 

could be held accountable for their decisions. These suppliers stated that 

this uncertainty may threaten supplier confidence, particularly related to a 

fair and consistent procurement process.

USPS purchasing officials stated that these purchasing rule changes would 

promote an efficient, businesslike purchasing system that would allow its 

contracting officers and USPS the flexibility to make business decisions in 

a more expedited manner. USPS officials told us that under its prior 

purchasing rules, contracting officers were restricted in their decisionmaking abilities due to cumbersome and inflexible rules. According to 

USPS officials, it will be able to update its nonbinding guidance more 
Page 15 GAO-06-190 U.S. Postal Service

expeditiously compared to its previous regulations. To respond to 

stakeholder concerns related to subjectivity and accountability, USPS said 

that oversight of USPS would not be diminished, as those charged now 

with such functions will continue to do so. They also stated that the new 

principles and guidance will be publicly available on USPS’s Web site and 

thus transparent. USPS has also added an ombudsman that would among 

other things, review contract award disagreements to determine whether 

USPS received best value. Also, regarding supplier diversity, USPS stated in 

its draft guidance that it will strive, as a strategic business initiative, to 

establish and maintain a strong competitive supplier base that reflects the 

diversity of the supplier community and provides suppliers with equal 

access to purchasing opportunities. 

USPS Has Added New 

Provisions Regarding Its 

Business Relationships with 

Suppliers and Its Right to 

Decline to Accept or 

Consider Proposals from 

Potential Suppliers

Another major change under USPS’s Final Rule is a new provision that 

allows USPS to refuse to accept or consider proposals from a person or 

organization who fails to meet reasonable business expectations. This 

regulation includes a new provision where the time limit on the duration of 

a USPS decision to not accept or consider proposals may be limited to a 

specified length of time or may extend indefinitely. The supplier also has 

the right to contest the matter with the ombudsman or seek other 

disagreement resolution procedures. This change establishes reasons for 

USPS to decline to accept or consider proposals if a person or organization 

does not meet “reasonable business expectations.” These reasons are as 

follows:

• marginal or dilatory contract performance;

• failure to deliver on promises made in the course of dealings with USPS;

• providing false and misleading information as to financial condition, 

ability to perform, or other material matters, including any aspect of 

contract performance; and

• engaging in other questionable or unprofessional conduct or business 

practices.

Some suppliers supported USPS changes in this area, particularly because 

they said the changes better reflect the practices of private-sector 

organizations. For example, one of these suppliers stated that the private 

sector has the ability to do business with a supplier or choose not to, and 

private-sector organizations are not required to debrief or provide 
Page 16 GAO-06-190 U.S. Postal Service

explanations to rejected suppliers as is generally required for federal 

executive branch agencies under the FAR. 

A number of concerns, however, were voiced by other suppliers about the 

changes in this area. These stakeholders were concerned with how 

fairness, consistency, and equal treatment of suppliers would be ensured 

under these more flexible regulations. First, some who had comments on 

the proposed rule were concerned that USPS’s criteria for entering into 

business relationships would involve factors other than contract 

performance.7

 For example, one supplier suggested that USPS could refuse 

a proposal from a supplier who had submitted a bid protest or disputed a 

contracting decision in the past. Second, another supplier stated that there 

would be a limited right to contest USPS decisions related to business 

relationships. Specifically, the supplier noted that USPS already has a 

formalized debarment and suspension process for excluding entities, in 

certain circumstances, from contracting with USPS that incorporates 

formal due process protections.8

 Stakeholders also noted that there are not 

similar due process protections accompanying USPS’s ability to refuse a 

proposal from a supplier. For example, there is no definite length of time 

mentioned in the rule in which USPS can opt not to do business with an 

entity; it may be limited to a specified length of time or may extend 

indefinitely. As such, stakeholders raised concerns in their comments on 

the proposed rule about the uncertainty associated with this new provision.

USPS purchasing officials stated that these changes would promote a 

system of establishing business relationships similar to that of privatesector organizations. USPS stated in the preamble to the Final Rule that it 

is not in the best interest of USPS’s customers, the supplier community, or 

7

Before it published its Final Rule, USPS dropped three additional reasons for not entering 

into a business relationship that it had included in its proposed rule. Those reasons were: (1) 

spurious, frivolous, or bad-faith litigation and/or claims; (2) failure to respond promptly and 

completely to USPS inquiries and requests for information, without inadvertence or good 

reason; and (3) negotiating or dealing in bad faith with USPS, including engaging in 

uncooperative practices.

8

Debarment, suspension, and ineligibility are exclusions from contracting or subcontracting 

for cause, whereby agencies do not solicit offers from, award contracts to, or consent to 

subcontracts with these contractors. Examples of cause include conviction of certain 

criminal offenses, violation of contracts, or offenses indicating lack of business integrity or 

honesty. For additional information about the government suspension and debarment 

process under the FAR, see GAO, Federal Procurement: Additional Data Reporting Could 

Improve the Suspension and Debarment Process, GAO-05-479 (Washington, D.C.: July 29, 

2005).
Page 17 GAO-06-190 U.S. Postal Service

general public for USPS to acquire property, goods, or services from 

companies that do not perform adequately. According to USPS purchasing 

officials, this procedure would allow discussions about a supplier’s past 

performance to be addressed before a potential supplier would spend time 

and money preparing a proposal. This procedure thus allows USPS the 

ability to inform suppliers in an efficient manner that their past poor 

performance would result in their proposal not being considered or 

selected. According to USPS, this new ability to decline to accept proposals 

may prove less bureaucratic and more effective in encouraging suppliers to 

improve their performance. Also, USPS purchasing officials stated that the 

new regulations provide appropriate safeguards that would give aggrieved 

suppliers written notice of the reason(s) why their bids would no longer be 

considered, and an opportunity to provide countervailing evidence, 

justification, or other reasons that the problem has been corrected. USPS 

purchasing officials stated that they expect there to be few occurrences 

where USPS would decline to accept proposals, and the decision would be 

made only after careful analysis of the basis for the action. Moreover, USPS 

said that only the Vice President of Supply Management would have the 

authority to make these decisions and would be held accountable for these 

decisions. These officials also stated that the difference between this 

procedure and debarment is that debarment arises from serious and severe 

conduct, either unethical or criminal, while declining to accept proposals 

arises from the erosion of the business relationship as a result of poor 

performance. Furthermore, the head of USPS’s purchasing organization 

stated that debarment for poor performance is used rarely and that there 

was only one such USPS case that he was aware of. 
Page 18 GAO-06-190 U.S. Postal Service

USPS Has Revised Its 

Regulations Regarding 

Purchasing Disagreements 

and Added an Ombudsman 

to Resolve Disagreements

Under its Final Rule, USPS provides that all disagreements, disputes, 

protests and claims against USPS arising in connection with its purchasing 

process (with the exception of claims that arise under the Contract 

Disputes Act or with respect to disputes about debarment, suspension, or 

ineligibility from government contracting) must be lodged with the 

responsible contracting officer within 10 days of the date of the 

disagreement.9

 If the disagreement is not resolved within 10 days following 

the lodging of the dispute with the contracting officer, the disagreement 

can be lodged with a newly created ombudsman.10 This ombudsman was 

appointed by USPS, reports to USPS’s Vice President of Supply 

Management, and is to make decisions based on “best value” 

determinations. The decisions of the ombudsman are final and binding, and 

under the new regulations cannot be appealed to a federal court of 

jurisdiction except for cases where the decision was (1) procured by fraud 

or other criminal misconduct or (2) obtained in violation of the regulations 

contained in the Final Rule or an applicable public law enacted by 

Congress. The Final Rule also includes a statement that encourages the use 

of alternative dispute resolution (ADR) to resolve disagreements and 

conflicts.11 A person or organization disagreeing with a USPS decision and 

the contracting officer are encouraged to consider ADR methods to resolve 

a dispute before pursuing the ombudsman process. 

These changes differ from the manner in which disagreements were 

resolved under the previous regulations. First, under the Purchasing 

Manual, a protest could be filed with either the contracting officer or 

directly with USPS’s General Counsel. If a protest was filed with the 

contracting officer but was not resolved, it could be referred to USPS’s 

General Counsel for review. The General Counsel would either (1) review 

9

Claims that arise under the Contract Disputes Act are related to disagreements that arise 

only after a contract has been awarded. 

10According to our past work, an ombudsman, or ombuds, is a dispute resolution 

practitioner who (1) receives complaints, concerns, and questions from individuals; (2) 

works to resolve these issues, making recommendations on individual matters where 

appropriate; and (3) brings to an entity’s attention chronic or systemic problems and makes 

recommendations for improvement. See GAO, Human Capital: The Role of Ombudsman in 

Dispute Resolution, GAO-01-466 (Washington, D.C.: Apr. 13, 2001).

11ADR is a method for resolving disputes, usually involving intervention or facilitation by a 

neutral third party, as a means of avoiding more formal and costly dispute resolution 

processes. ADR may include such methods as mediation, dispute resolution boards, and 

arbitration.
Page 19 GAO-06-190 U.S. Postal Service

the decision of the contracting officer or (2) review the protest that was 

filed directly with the General Counsel. Appeals of contracting officer 

and/or General Counsel decisions could be made to a federal court of 

jurisdiction. Under the Final Rule, the General Counsel is not an official 

decision maker in the bid protest process. Furthermore, the Final Rule 

restricts the reasons why a protestor can appeal a decision of the 

ombudsman and limits a supplier to an appeal from the ombudsman’s 

decision based only on the grounds listed above. 

A number of stakeholders commented that the use of ADR and the 

ombudsman are good steps in achieving a more efficient dispute resolution 

process. These stakeholders also stated that the ombudsman process is a 

promising idea and step in the right direction toward having a streamlined 

and fair resolution process. Some stakeholders, however, stated that 

uncertainties and a lack of independence pose serious threats to having a 

fair ombudsman process. These uncertainties included how the 

ombudsman would be appointed and to whom the ombudsman would 

report, both of which were not included in the proposed or Final Rule but 

may have implications on the independence of the ombudsman. Some of 

the stakeholders said that they preferred the ombudsman to be 

independent of USPS, or at least report to someone outside of USPS’s 

purchasing organization. Furthermore, these stakeholders also believed 

that the ombudsman should have the authority to impose corrective and 

remedial action, and questioned the final and binding nature of the 

ombudsman decision making.12 Some stakeholders also noted that federal 

court jurisdiction should not be limited to those cases identified by USPS.13

Some stakeholders stated that federal courts have supported the right of a 

protester to appeal a bid protest decision of USPS to a federal court for 

review.

USPS officials told us that one of the purposes of these changes is to ensure 

that most disagreements arising between suppliers or potential suppliers 

and USPS regarding all aspects of solicitations, awards, and related 

12In order to appeal a decision to a federal court, the decision must be final and binding. If 

the ombudsman makes a recommendation, the parties could not appeal until USPS made a 

final and binding decision.

13As stated earlier, the final rule limits appeals of USPS ombudsman decisions to a federal 

court with jurisdiction over such claims only on the grounds that the decision was procured 

by fraud or other criminal misconduct or obtained in violation of the regulations contained 

in the Final Rule or an applicable public law enacted by Congress.
Page 20 GAO-06-190 U.S. Postal Service

matters, are resolved in an efficient manner at the management or 

contracting officer level. In an effort to avoid costly litigation and disputes, 

and mirror leading private and public-sector organizations, USPS revised 

its protest procedures to emphasize using ADR processes or its new 

ombudsman. USPS has noted that, in the past, it has been involved with 

litigation which is lengthy and costly for both parties and which could have 

potentially been resolved in a more informal and efficient way. From 

calendar year 2000 through 2004, on average each year, 21 contract bid 

protests/disputes were filed with USPS’s General Counsel, and 2 cases 

were filed in federal court. USPS’s Vice President of Supply Management 

also stated that the new provisions related to restricting appeals of 

ombudsman decisions are intended to streamline the appeals process and 

that, ultimately, the courts will decide what cases can be appealed.

USPS officials also told us that by placing added emphasis on ADR 

processes, they hoped to better resolve disagreements that arise between 

USPS and its suppliers and potential suppliers. USPS’s Final Rule stated 

that USPS supports and encourages the use of ADR as an effective way to 

understand, address, and resolve business disagreements and conflicts 

with suppliers. Further, the Final Rule states that, in order to better serve 

its suppliers, USPS appointed an ombudsman who is to focus on best-value 

considerations for USPS and business decisions made by the contracting 

officer to determine which supplier should be awarded a contract. 

According to USPS, this will ensure that the right business decision for 

USPS has been made by the contracting officer. USPS has appointed a 

person as ombudsman who is from within the supply management 

organization, stating that the ombudsman needed to come from within the 

organization and be someone who understands supply management, 

knows the postal culture, and has knowledge of postal operations. USPS 

has said that it wants an ombudsman who is familiar with the business, 

which it said would ensure that a prompt result is more likely and less 

expensive in the long run than hiring someone from outside of the agency. 

Diversity of Comments and 

Differing Expectations 

Reflect USPS’s Unique 

Status

The diversity of comments on the proposed regulations reflect the 

differences in expectations that postal stakeholders have often debated as 

part of postal reform. This tension is inherent in USPS’s unique status as a 

federal agency with a government monopoly that is operating in a more 

competitive marketplace than when Congress changed USPS’s status in 

1970 and removed the application of many federal laws to USPS so that it 

could act more like a business. We talked to several postal stakeholders 

who commented on USPS’s proposed regulatory changes to obtain their 
Page 21 GAO-06-190 U.S. Postal Service

views on whether USPS addressed their concerns in the Final Rule and the 

potential impact of the Final Rule.14 Some association representatives that 

we spoke with felt that USPS had not addressed their concerns in the Final 

Rule. For example, although USPS made a substantive change in the Final 

Rule (it revised the basis for cancelling business relationships and dropped 

three criteria that were criticized in the comments as being too subjective), 

these representatives remain concerned about USPS’s additional 

flexibilities in this area. Other stakeholders had similar concerns that USPS 

has more flexibility and discretion than most other federal agencies. They 

also noted that USPS has an advantage over private-sector organizations in 

that USPS has the right to terminate contracts for convenience, which 

private-sector organizations do not.15 However, we note that this is not new 

authority granted under the new regulations since USPS could terminate 

contracts for convenience under previous regulations.

Although it is too early to assess the impact of these changes because USPS 

has not issued its final guidance, and the regulations have only been in 

place for 7 months, the next challenge for USPS will be whether its 

implementation of these revised regulations will raise the confidence of its 

supplier community so that it can achieve the desired benefits. We further 

explored this area by focusing on the key purchasing reform principles and 

practices of leading public and private-sector organizations.

14We spoke to several stakeholders about the comments provided by their organizations on 

USPS’s proposed rule from the American Bar Association; Wickwire Gavin, a law firm with a 

postal contracting practice area that represents over 100 of USPS’s suppliers and 

contractors; the National Star Route Mail Contractors Association, an association that 

represents small business men and women who contract with USPS for highway mail 

transportation, and Lockheed Martin. We also spoke with officials from IBM and members 

of the Small Business Procurement Coalition, which includes organizations representing 

small business interests.

15The government can terminate contracts for convenience for the best interests of the 

government (not necessarily as a result of fault on the part of a contractor or for default for 

failure on the part of a contractor to live up to contractual obligations). Under termination 

for convenience, the government has the right to refuse to continue with contract 

performance—to stop the work and settle with the contractor at the point of termination. 

This procedure is unique to the federal government; private industry does not have 

comparable procedures.
Page 22 GAO-06-190 U.S. Postal Service

USPS’s Purchasing 

Changes Are Generally 

Consistent with Key 

Reform Principles and 

Practices, Except 

Those Related to the 

Ombudsman 

We analyzed the provisions of USPS’s purchasing changes, the revised 

purchasing regulations and draft guidance, in terms of key principles 

incorporated in postal reform legislation and the purchasing practices of 

leading public and private-sector organizations. The following summarizes 

these key principles:

• flexibility—utilize flexibility to implement leading practices, effectively 

respond to changing market conditions and competition, and revise 

policies and processes to reflect evolving changes; 

• efficiency—promote efficient and effective operations;

• social responsibility—conduct operations in a manner that avoids 

conflicts of interest, promotes positive supplier relationships through 

courtesy and impartiality, encourages support for small, minority-, and 

women-owned businesses, ensures financial transparency in financial 

dealings, and treats people with dignity and respect; and, 

• accountability—promote appropriate accountability by holding 

leadership accountable for the performance of the organization, as well 

as promote transparent operations by tracking, monitoring, evaluating, 

and reporting results.

For the most part, we found that USPS’s changes are consistent with the 

key reform principles and purchasing practices of leading public and 

private-sector organizations. Leading purchasing organizations aim to 

develop an efficient purchasing system that takes advantage of available 

flexibilities to limit costs and maximize service and value and promote 

socially responsible behavior. However, we have concerns about 

inconsistencies between USPS’s regulatory change related to its 

ombudsman and key practices and principles. Specifically, we believe the 

role, structure, and decision-making authority of USPS’s ombudsman are 

not consistent with key principles or practices of independence and 

impartiality applied by leading ombudsman organizations. Based on these 

inconsistencies and uncertainties related to whether USPS’s 

implementation of its new regulations will effectively balance the key 

principles, continued oversight of this area will be needed.
Page 23 GAO-06-190 U.S. Postal Service

USPS Draft Guidance: The 

Supplying Principles and 

Practices

As we described earlier, the preamble to USPS’s regulatory changes refer to 

new guidance that, according to USPS, will provide the principles and 

practices to guide USPS’s contracting personnel in making purchasing 

decisions. This guidance, the Supplying Principles and Practices, has not 

yet been publicly released and was not part of the regulatory comment 

process. However, USPS provided us with a draft copy for the purposes of 

this review, and the references to guidance in this section reflect the draft 

guidance. 

In order to compare USPS’s principles and practices with those of leading 

organizations, we reviewed the eight key principles that were included in 

USPS’s draft guidance. These draft principles are as follows:

• Authority and structure: The Postal Reorganization Act provides 

purchasing authority to the Postmaster General. That authority has been 

delegated to the Vice President of Supply Management. Only individuals 

that have delegated contracting authority from the Vice President or 

from other authorized individuals may award, modify, and terminate 

contracts for the purchase of goods and services. Individuals with 

delegated contracting authority must ensure that their contractual 

actions, including contract awards, modifications, and terminations, are 

within the scope of the authority delegated to them before taking those 

actions.

• Best value: USPS’s supply management decisions are to be based on 

best value, which is defined as the outcome that provides the optimal 

combination of elements such as lowest total life cycle cost, technology, 

innovation and efficiency, assurance of supply, and quality relative to 

USPS’s needs. In the sourcing area, best value is generally, but not 

always, achieved through competition, which brings market forces to 

bear and allows the direct comparison of proposals and life cycle costs. 

USPS’s supply management teams are provided broad flexibility in (1) 

deciding which elements of value will be sought by USPS and expressed 

in solicitation evaluation factors and their weightings and (2) 

determining the best supply management method.

• Ethics and social responsibility: USPS’s supply management 

professionals should conduct themselves with integrity and must adhere 

to the “Standards of Ethical Conduct for Employees of the Executive 

Branch,” (5 C.F.R. 2635) and the “Supplemental Standards of Ethical 

Conduct for Postal Employees,” (5 C.F.R. Part 7001). In addition, USPS’s 
Page 24 GAO-06-190 U.S. Postal Service

supply management activities are guided by the Institute of Supply 

Management’s “Principles of Social Responsibility.”

• People and culture: USPS requires supply management personnel to 

have baccalaureate or postgraduate degrees so that they will have 

appropriate competencies, such as the ability to perform detailed 

pricing, market, and item analyses. Supply Management personnel are 

encouraged to take prudent risks to achieve desired goals. These goals 

will be aligned with Supply Management’s organization goals, and goals 

will be the basis for metrics used to assess and reward the performance 

of supply management professionals.

• Planning and strategies: USPS will adopt proven supply management 

tools and techniques to meet its financial goals. USPS is committed to 

continually analyzing and improving its supplying practices to enhance 

its competitive advantage, efficiency, and effectiveness. USPS will use a 

variety of means, including benchmarking and other market research; 

participation in professional organizations; strategic planning; 

leveraging spend by centralizing spend categories and standardizing 

products to reduce total cost, including transaction costs; and improve 

quality and performance.

• Statutory and regulatory requirements: USPS will comply with its 

statutory and regulatory obligations contained in the C.F.R.

• Supplier relations: USPS will foster strong, mutually beneficial 

relations with its suppliers based upon sound business practices and 

mutual trust in which both parties work toward a common goal. USPS 

will continuously measure, analyze, and enhance supplier performance 

relative to contractual requirements and the best practices of leading 

supply organizations. USPS will establish a strong, competitive supplier 

base that reflects the diversity of the supplier community. Additionally, 

USPS suppliers will be encouraged to use small, minority-, and womenowned businesses as subcontractors to the maximum extent consistent 

with effective contract performance.

• Technology: One of USPS’s goals is to have an integrated electronic 

business solution for all supply processes so that USPS suppliers will 

become capable of conducting business electronically. USPS will 

attempt to automate routine transactions to reduce processing time, 

improve quality through better record keeping and fewer errors in data, 

reduce inventory through faster and more accurate filling of orders, and 
Page 25 GAO-06-190 U.S. Postal Service

provide management with improved decision-making tools through near 

real-time access to business information.

The draft guidance also contains the general practices to be used by USPS 

employees when making purchasing decisions. These practices include 

Identify Key Stakeholders, Select Contract Type, and Provide Feedback 

and fall into the following six general areas:

1. identifying needs,

2. evaluating sources,

3. selecting suppliers,

4. delivering and receiving products and services,

5. measuring and managing supply, and

6. disposing of assets (end of life).

The guidance also identifies tools and techniques, roles and 

responsibilities, and key questions that need to be addressed by USPS 

contracting officials when making purchasing decisions. 

Key Principles and Practices 

Applied by Leading 

Organizations

We also reviewed numerous documents from organizations involved in 

postal and procurement reform efforts and discussed leading procurement 

reform practices with experts in this area who consult with both public and 

private-sector organizations to determine the key principles that they 

follow when making reforms. Based on this information (which is 

described below), we identified the key principles of flexibility, efficiency, 

social responsibility, and accountability, as well as the practices applied by 

leading organizations in this area. 

Proposed postal reform legislation: During the past 10 years, Congress has 

looked at ways to increase flexibility and authority for USPS so that it can 

better adapt to the changing marketplace and remain viable as a selffinancing public institution. These legislative efforts have included 

provisions that would reform selected purchasing and contracting 

activities. The most recent postal reform legislation introduced in 2005—S. 

662 and H.R. 22—would provide USPS additional flexibilities to operate in 

a more efficient manner but couple this additional flexibility with both 
Page 26 GAO-06-190 U.S. Postal Service

accountability and oversight mechanisms to ensure fairness and 

consistency.16 Specifically, S. 662, states that USPS should (1) ensure the 

fair and consistent treatment of suppliers and contractors through the use 

of mechanisms such as competitive contract award procedures, effective 

dispute resolution mechanisms, and socioeconomic programs and (2) 

implement commercial best practices in its purchasing policies to achieve 

greater efficiency and cost savings. Further, H.R. 22 included a provision 

that would have required USPS to report to the President and Congress on 

the number and value of contracts and subcontracts that USPS has entered 

into with small, minority-, and women-owned businesses.

President’s Commission report: The Commission’s 2003 report called for 

USPS to take advantage of certain corporate best practices to improve 

overall efficiencies and stated that, in instances where USPS is granted 

additional flexibility, mechanisms are needed to promote accountability 

and oversight of USPS’s operations.17 The report said that USPS could save 

hundreds of millions of dollars by adopting purchasing practices that have 

substantially lowered costs for private-sector companies. The report also 

noted that although the 1970 act granted USPS flexibility in its procurement 

process, USPS officials have elected not to take advantage of those 

flexibilities and instead have abided by standards in line with those 

applicable to other federal agencies under the FAR. As such, the 

Commission recommended that USPS “take full advantage of the flexibility 

it is granted under the current law and that Congress strongly support its 

aggressive procurement reforms in acknowledgement of its substantial 

benefits to all ratepayers.” 

OMB Strategic Sourcing Guidance: Although they do not apply to USPS, 

we also reviewed the Office of Management and Budget’s (OMB) guidance 

to federal agencies on implementing its strategic sourcing initiative so that 

agencies leverage their spending to the maximum extent possible. OMB 

describes strategic sourcing as a collaborative and structured process of 

critically analyzing an organization’s spending and using this information to 

make business decisions about acquiring commodities and services more 

effectively and efficiently. This process helps agencies optimize 

performance, minimize price, increase achievement of socioeconomic 

16S. 662, Title X, Section 1004 and H.R. 22, Title VII, Section 706.

17The President’s Commission on the United States Postal Service, Embracing the Future, 

Making the Tough Choices to Preserve Universal Mail Service (Washington, D.C.: July 31, 

2003).
Page 27 GAO-06-190 U.S. Postal Service

acquisition goals, evaluate total life cycle management costs, improve 

vendor access to business opportunities, and otherwise increase the value 

of each dollar spent. Some of the practices included in OMB’s guidance 

include the following:

• Strategic sourcing governance—A charter should be developed 

outlining the members, roles, responsibilities, and operations of an 

agencywide Strategic Sourcing Council and any commodity councils to 

be formed. 

• Strategic sourcing goals and objectives—The Strategic Sourcing Council 

should establish annual strategic sourcing goals and objectives, by fiscal 

year. These goals and objectives should include existing strategic 

sourcing efforts, as well as prioritizing new initiatives. In addition to 

cost and performance goals, any strategic sourcing plan must be 

balanced with socioeconomic goals for small businesses, small 

disadvantaged businesses, women-owned small businesses, veteranowned businesses, service-disabled veteran-owned businesses, and 

others, as appropriate. 

• Performance measures—The Strategic Sourcing Council should 

establish agencywide performance measures and reporting 

requirements in order to enhance accountability by monitoring and 

continuously improving the strategic sourcing program. 

• Communications strategy—The Strategic Sourcing Plan should also 

include a communication strategy that clearly conveys senior 

management’s commitment to the effort, describes the scope of the 

effort, and identifies any organizational changes. The communications 

strategy should also include steps to make agency employees aware of 

awarded strategic sourcing contracts and how they are to be used. 

• Training strategy—The plan should identify actions necessary to 

educate agency personnel to support effective and efficient strategic 

sourcing implementation and management. 
Page 28 GAO-06-190 U.S. Postal Service

GAO reports and testimonies: We have testified and reported on multiple 

occasions that we support postal reforms that would provide USPS 

additional flexibility to act in a more efficient, businesslike manner along 

with appropriate accountability mechanisms to ensure fairness.18 In 

September 2005, we established a framework for assessing the acquisition 

function at federal agencies, which highlighted the importance of 

promoting an efficient, effective, and accountable acquisition process.19 In 

particular, this framework identified how the consistent implementation of 

clear and transparent policies and processes will assist in effectively 

managing the acquisition process and promoting successful outcomes. We 

also have issued reports examining the savings that leading private-sector 

companies, including ChevronTexaco, Dell Computer, and IBM, have 

achieved by using a strategic approach to procurement and spend analysis 

and concluded that this approach can be effective for federal agencies as 

well.20 These reports identified that the Departments of Defense, Veterans 

Affairs, Health and Human Services, and Agriculture have made progress in 

also have issued reports that focused directly on contracting activities at 

USPS. In these reports, we noted that although USPS was using supply 

chain management—a process that has helped private-sector companies 

leverage their buying power and identify more efficient ways to procure 

goods and services—USPS has had mixed success in implementing some of 

its initiatives in this area.21 These shortcomings will be discussed in more 

detail later in this report.

18GAO, International Mail Air Transportation: Proposed Changes to the Rate-setting 

Process, GAO-05-529R (Washington, D.C.: Apr. 8, 2005); GAO, U.S. Postal Service: Key 

Reasons for Postal Reform, GAO-04-565T (Washington, D.C.: Mar. 23, 2004); GAO, Need for 

Comprehensive Postal Reform, GAO-04-455R (Washington, D.C.: Feb. 6, 2004); GAO, U.S. 

Postal Service: Key Elements of Comprehensive Postal Reform, GAO-04-397T (Washington, 

D.C.: Jan. 28, 2004); GAO, U.S. Postal Service: Bold Action Needed to Continue Progress on 

Postal Transformation, GAO-04-108T (Washington, D.C.: Nov. 5, 2003).

19GAO, A Framework for Assessing the Acquisition Function at Federal Agencies, GAO-05-

218G (Washington, D.C.: September 2005).

20GAO, Best Practices: Using Spend Analysis to Help Agencies Take a More Strategic 

Approach to Procurement, GAO-04-870 (Washington, D.C.: Sept. 16, 2004); GAO, Best 

Practices: Improved Knowledge of DOD Service Contracts Could Reveal Significant 

Savings, GAO-03-661 (Washington, D.C.: June 9, 2003); and GAO, Best Practices: Taking a 

Strategic Approach Could Improve DOD’s Acquisition of Services, GAO-02-230

(Washington, D.C.: Jan. 18, 2002).

21GAO, Postal Service: Progress in Implementing Supply Chain Management Initiatives, 

GAO-04-540 (Washington, D.C.: May 17, 2004); and GAO, Contract Management: Postal 

Service’s National Office Supply Contract Has Not Been Effectively Implemented, GAO-03-

230 (Washington, D.C.: Jan. 17, 2003).
Page 29 GAO-06-190 U.S. Postal Service

Private-sector purchasing experts: In addition to our previous work in the 

procurement area, we spoke to officials from organizations that are 

considered experts in the area of purchasing reform and who also 

consulted with USPS about changes needed in its purchasing practices. 

These included officials from IBM, the Center for Strategic Supply 

Research, and the Institute for Supply Management. These officials stated 

that leading organizations in this area continually look for opportunities to 

increase efficiency and “best value” in this area. Based upon our past work 

in this area, as well as discussions with these experts, we identified some of 

the leading practices that are related to implementing a strategic sourcing 

approach include the following: 

• take an enterprise wide approach to buying goods and services;

• provide clear and strong leadership, including establishing goals and 

prioritizing initiatives to enhance accountability for performance;

• utilize supply chain management to leverage the organization’s buying 

power and identify more efficient ways to procure goods and services;

• develop information systems—i.e., a spend analysis system—to identify 

how much is being spent with which supplier for what goods or 

services;

• create commodity-specific experts and provide these experts the 

flexibility and discretion to make market-based decisions;

• demonstrate value and credibility of new processes through the use of 

cost and performance metrics and reporting to monitor and make 

continuous improvements; and

• establish proactive business relationships, particularly with high-quality 

suppliers, such as utilizing prequalified supplier lists.

These experts also noted other leading practices that private-sector 

companies incorporate in their purchasing processes. These include efforts 

to

• resolve disputes in an efficient manner, including alternative dispute 

resolution;
Page 30 GAO-06-190 U.S. Postal Service

• promote socially responsible contracting that incorporates a diverse 

supplier base and ensures that contracting officials act in an ethical, 

professional manner; and

• establish flexible policies and procedures that can be updated in an 

expeditious manner to effectively respond to market changes.

USPS’s Purchasing 

Changes Are Generally 

Consistent with 

Principles and 

Practices of Leading 

Organizations 

For the most part, USPS’s changes to its purchasing policies—its new 

regulations and its draft guidance—reflect leading practices aimed at 

increasing the flexibility, efficiency, social responsibility and accountability 

in its purchasing system. One area of USPS’s regulatory changes that we do 

not believe is consistent with leading practices, its ombudsman, will be 

discussed in the next section of this report.

USPS’s Purchasing Changes 

Are Consistent with the 

Leading Principle of 

Flexibility

We found that USPS’s regulatory changes and guidance include leading 

practices related to flexibility. Leading organizations in both the public and 

private sector need to have the flexibility to take advantage of leading 

practices, such as reengineering their purchasing processes to incorporate 

supply management initiatives and strategic sourcing. USPS’s new 

regulations state that they are designed to permit flexibility so that USPS 

may respond to market conditions in acquiring the best property goods and 

service to meet its needs at a fair and reasonable price. According to USPS 

officials, it will be able to update its non-binding guidance more 

expeditiously compared to its previous regulations. This allows for more 

timely and responsive reactions to changes in the marketplace. Also, 

USPS’s new regulations provide flexibilities similar to those for leading 

private-sector organizations in terms of how they enter into business 

relationships and decline to accept or consider proposals. Further, USPS’s 

new guidance enhances the discretion of contracting officers when making 

decisions. 

USPS’s Purchasing Changes 

Are Consistent with the 

Leading Principle of 

Efficiency

We also found that USPS’s changes are consistent with leading practices 

related to increasing efficiencies. Leading organizations continually look 

for opportunities to improve the efficiency of their procurement systems 

and use a variety of practices to achieve these efficiencies including
Page 31 GAO-06-190 U.S. Postal Service

• incorporating supply chain management,

• conducting spend analysis,

• creating commodity-specific experts,

• establishing proactive business relationships with suppliers, and 

• determining efficient ways to resolve disputes and disagreements.

USPS’s draft guidance incorporates specific leading practices to implement 

supply chain management, conduct spend analysis, establish commodityspecific experts, have effective and expeditious dispute resolution 

processes, promote positive business relationships, improve management 

structure and oversight, prequalify suppliers, and effectively use 

technology. This guidance states that it expects that efficiencies will be 

gained by leveraging its nationwide network. For example, instead of 

purchasing gas from various suppliers, USPS intends to take advantage of 

volume discounts and consolidate its buys with fewer suppliers. These 

actions should allow USPS to reduce the number of transactions that occur 

and take advantage of volume discounts. 

USPS’s Purchasing Changes 

Are Consistent with the 

Leading Principle of Social 

Responsibility

USPS’s new regulations include some specific factors that are consistent 

with leading supply management principles and practices related to social 

responsibility. These principles state that leading public and private 

organizations should conduct their operations in a socially responsible, 

professional manner by avoiding conflicts of interest, promoting positive 

supplier relationships through courtesy and impartiality, encouraging 

support for small, minority-, and women-owned businesses, ensuring 

financial transparency in financial dealings, and treating people with 

dignity and respect.22 The process and policies by which these results are 

achieved, however, can vary between public and private organizations. For 

example, a couple of USPS suppliers stated that they do not consider 

fairness to be a key component of their procurement policies and 

procedures, but that principles of socially responsible behavior, such as 

incorporating integrity, ethical behavior, and supplier diversity, are critical 

to their success. One of the key differences between public and private 

22Institute for Supply Management, Principles and Standards of Ethical Supply 

Management Conduct, January 2002, and Principles of Social Responsibility, April 2004. 
Page 32 GAO-06-190 U.S. Postal Service

sector purchasing is that purchasing regulations for public sector entities 

that fall under the FAR include specific references or objectives related to 

fairness. For example, the FAR emphasizes conducting business with 

integrity and fairness, such as requiring open communication with 

stakeholders and developing a trained, qualified procurement workforce. 

These actions are aimed at maintaining the public’s trust in the federal 

procurement system. 

USPS’s ethics and social responsibility principle in its draft guidance calls 

for USPS’s supply management professionals to act with the highest 

standards of conduct, ethics, and integrity, and these professionals also will 

be guided by the key principles of social responsibility identified by the 

Institute of Supply Management. This guidance specifies that contracting 

officials must maintain necessary professional proficiencies. Furthermore, 

under the principle titled “supplier relations,” the guidance states that 

USPS will attempt to establish and maintain a strong competitive supplier 

base that reflects the diversity of the supplier community and provides 

suppliers with equal access to purchasing opportunities. Although it is 

specifically excluded from the operation of the Small Business Act by 15 

U.S.C. 637c, USPS stated that it continues to be a leader in this area. For 

example, USPS reported that. on average over the past 5 years, it has 

distributed 4.1 percent of its prime contract commitments to minorityowned businesses, 6.4 percent to women-owned businesses, and 42.3 

percent overall to small businesses (see table 3). In comparison, the Small 

Business Administration’s governmentwide aggregate goals in fiscal year 

2004 were 5 percent for women-owned businesses and 23 percent for small 

businesses.23 USPS reported that in fiscal year 2004 it had contract 

commitments worth about $344 million with minority-owned businesses, 

$577 million with women-owned businesses, and over $3.4 billion with 

small businesses. 

23While the statutory goals for representation in contracting by small businesses and 

women-owned small businesses are goals for the federal government overall, the Small 

Business Administration negotiates with each of the federal agencies individually to 

establish agency-specific goals so that the governmentwide goals are met in the aggregate. 

Since USPS is exempt from the Small Business Act, the Small Business Administration does 

not establish any goals for USPS. Also, we did not include a governmentwide goal for 

contracting with minority-owned businesses because Small Business Administration does 

not have a comparable governmentwide goal, rather it has a goal of 5 percent for small, 

disadvantaged businesses. 
Page 33 GAO-06-190 U.S. Postal Service

Table 3: USPS Prime Contract Commitments with Small, Minority-, and Women-Owned Businesses, Fiscal Years 2000-2004

Source: USPS.

a

Overall contract commitments exclude instances where small, minority-, and women-owned 

businesses are not offered contracting opportunities. Such instances include contracts for mandatory 

sources, foreign contracts, utilities, or educational institutions.

Although the social responsibility principles included in the draft guidance 

are consistent with key principles and practices and USPS’s past 

performance in this area exceeds the governmentwide averages, some 

small business suppliers are concerned that they may be negatively 

impacted as USPS implements its revised regulations and strives to become 

more efficient. We and USPS’s Inspector General have previously reported 

on USPS’s difficulties in incorporating small, minority-, and women-owned 

businesses into some of its supply chain management initiatives. These 

reports raised concerns about USPS not proactively exploring options for 

keeping small businesses involved; not setting targets for contracting with 

small businesses; and having incomplete and unreliable contracting data 

for small, minority-, and women-owned businesses.24 Furthermore, 

members of the mailers’ Small Business Procurement Coalition told us 

about their concerns regarding the extent to which small, minority-, and 

women-owned businesses are limited to subcontracts, rather than being 

awarded the primary contract where they would have greater authority. As 

we will later discuss, establishing targets and effectively tracking 

Dollars in millions

Fiscal 

year

Minority-owned businesses Women-owned businesses Small businesses

Contract 

commitments

Percentage of 

overall contract 

commitmentsa

Contract 

commitments

Percentage of 

overall contract 

commitments

Contract 

commitments

Percentage of 

overall contract 

commitments

2000 $336.8 4.7% $488.7 6.8% $3,564.9 49.6%

2001 313.9 2.3 569.5 4.1 3,807.6 27.6

2002 272.5 4.5 361.3 6.0 2.463.1 41.1

2003 334.0 3.8 590.4 6.6 3,863.9 43.4

2004 344.8 5.0 577.3 8.4 3,429.1 49.7

Average $320.4 4.1% $517.4 6.4% $3,425.7 42.3%

24GAO-04-540, GAO-03-230, and Office of Inspector General, U.S. Postal Service, Supplier 

Diversity Program for Supplies, Services, and Equipment Purchases, CA-AR-01-005 

(Arlington, VA: Sept. 6, 2001).
Page 34 GAO-06-190 U.S. Postal Service

performance, particularly for small, minority-, and women-owned 

businesses, will be important to ensuring appropriate accountability.

USPS’s Purchasing Changes 

Are Consistent with the 

Leading Principle of 

Accountability

We believe that USPS’s draft guidance includes performance mechanisms 

that are consistent with leading accountability practices. For example, it 

states that USPS will use goals and metrics to hold its professionals 

accountable and allow USPS to assess and reward performance. Leading 

procurement experts in both the public and private sectors have 

recognized the importance of accountability throughout the organization 

for results. For example, OMB’s guidance to all federal Chief Acquisition 

Officers stressed the need for establishing performance goals and 

measures and for monitoring, reporting, and evaluating the results. We 

have also reported on the purchasing practices that leading private-sector 

companies, such as ChevronTexaco, Dell Computer, and IBM use to 

promote accountability. These companies have developed formal spend 

analysis programs that monitor, track, and analyze spending to improve 

their procurement processes.25 Spend analysis programs help to identify 

areas for savings, as well as develop reports for top management to 

establish quarterly and annual savings goals and track financial and other 

benefits achieved. 

USPS’s changes identify accountability principles and practices that reflect 

those of leading organizations. For example, to enhance transparency, 

USPS guidance will be publicly available on USPS’s Web site. USPS’s 

guidance states that USPS plans to have goals that will be used to assess 

the performance of its purchasing professionals and metrics to be used in 

contract management that will be results-oriented, specific, measurable 

and achievable. The guidance also notes that USPS will use spend analysis 

to assist it in tracking spending and identifying potential savings. This 

process will help to determine whether to renew contract(s) with an 

existing supplier or switch to a new one and evaluate whether purchased 

products or services met specific USPS needs. These goals and measures 

can also address concerns raised by some stakeholders about whether 

USPS will achieve its projected efficiency goals under these regulatory 

changes.

25GAO-03-661.
Page 35 GAO-06-190 U.S. Postal Service

USPS’s Ombudsman 

Regulatory Provisions 

and Guidance Are Not 

Consistent with 

Leading Ombudsman 

Principles and 

Practices 

USPS’s ombudsman, as it is currently structured, is not consistent with the 

core principles of independence, impartiality, and confidentiality related to 

the role of the ombudsman as identified by leading organizations. USPS’s 

ombudsman is not independent of the Supply Management organization—

the ombudsman reports to the head of Supply Management—raising issues 

of conflict of interest or that its decisions may not be viewed as impartial. 

Furthermore, the decisions of USPS’s ombudsman are final and binding; 

typically ombudsman decisions are recommendations. Concerns remain 

about USPS’s intended purpose for its ombudsman position and the 

independence and impartiality of this process as it is currently structured. 

Leading Principles and 

Practices for an 

Ombudsman

Leading organizations have established core principles and practices for 

developing and implementing an effective and credible ombudsman 

process. The American Bar Association (ABA) adopted a resolution in 

February 2004 that applies to the establishment of an ombudsman for both 

government and private-sector entities. The Coalition of Federal 

Ombudsmen has incorporated these ABA principles into its draft 

supplement to the ABA standards. In our past work, we have also reviewed 

the professional standards of practices related to ombudsman.26 The core 

principles endorsed by these organizations include having an ombudsman 

who is independent, impartial/neutral, and protects confidentiality. 

According to leading experts in this area, these principles can apply to 

ombudsman in the private or public sector, and are as follows:

• Independent: An ombudsman should be free from interference or 

control by an official of the appointing entity or by a person who may be 

the subject of a complaint or inquiry. Furthermore, standards for the 

ombudsman state that an ombudsman should function independently of 

line management. This could include having the ombudsman report 

directly to the highest agency official, report directly to the official 

governing body of the organization, or having the ombudsman 

appointed by someone not a subject of a complaint or inquiry.

26GAO-01-466, GAO, Environmental Protection: Issues for Consideration in the 

Reorganization of EPA’s Ombudsman Function, GAO-02-859T (Washington, D.C.: June 25, 

2002), and GAO, Hazardous Waste: EPA’s National and Regional Ombudsman Do Not 

Have Sufficient Independence, GAO-01-813 (Washington, D.C.: July 27, 2001).
Page 36 GAO-06-190 U.S. Postal Service

• Impartial/neutral: An ombudsman should be free from initial bias and 

conflicts of interest when conducting inquiries and investigations. The 

ombudsman should not represent complainants or the organization and 

should conduct investigations in an impartial manner. Furthermore, 

leading organizations state that typically, ombudsman decisions are 

“recommendations” rather than legally-binding decisions and emphasize 

that periodic reports should be issued regarding the rulings of the 

ombudsman. 

• Protect confidentiality: An ombudsman should not be required to 

disclose any information provided in confidence or reveal the identity of 

a complainant without the complainant's express consent to prevent the 

risk of reprisal.

These leading organizations also stated that typically an ombudsman has 

played a more informal mediation role as a neutral third party by assisting 

in negotiations to resolve disputes. According to our past work, the 

ombudsman is a dispute resolution practitioner who uses a variety of 

techniques, including ADR processes, to deal with complaints, concerns, 

and questions. The ombudsman is an informal alternative to more formal 

processes that an organization has in place to deal with conflict resolution. 

Both the ABA’s rule and the Coalition of Federal Ombudsman’s supplement 

provide that an ombudsman should not make binding decisions or 

determine rights but instead make recommendations to management. 

Inconsistencies in USPS’s 

Ombudsman Provisions and 

Guidance

We have concerns related to USPS’s ombudsman provision and the 

ombudsman’s ability to fairly resolve business disagreements because its 

role, structure, and authority are not consistent with key principles of 

impartiality and independence embodied by leading organizations. These 

uncertainties may have a negative effect on supplier confidence and 

perceptions of fairness, which could severely hinder USPS’s credibility and 

its ability to achieve successful supplier relationships. Furthermore, 

leading ombudsman organizations raised concerns about inconsistencies 

between the role and structure of USPS’s ombudsman and the key 

principles endorsed by these organizations, which could contribute to 

confusion in their efforts to develop a common understanding of the role 

and responsibilities of an ombudsman in both public and private-sector 

organizations. 

USPS stated that its ombudsman process was established based on the 

structure and role of an ombudsman at leading organizations, including 
Page 37 GAO-06-190 U.S. Postal Service

IBM and National Aeronautics and Space Administration (NASA). Further, 

USPS officials told us that one of their key objectives in revising their 

purchasing regulations was to ensure that responsibility and accountability 

for purchasing decisions was clearly within the supply management 

organization. Also, they explained that when they considered the 

establishment of the ombudsman provision, they wanted a process that 

would resolve disagreements with aggrieved suppliers/potential suppliers 

in an expedited manner, both inexpensively and with finality, and that 

decisions would be made based on best value determinations for USPS. 

Although it is not explicitly stated in the regulation or guidance, USPS 

preferred appointing as ombudsman a person from within USPS’s Supply 

Management organization, who understands supply management, knows 

the postal culture, and has knowledge of postal operations. According to 

USPS officials, this knowledge would help the person who serves as the 

ombudsman ensure that disagreements are resolved in an efficient and 

prompt manner. 

USPS’s draft guidance specifies that USPS would prefer to resolve disputes 

prior to their reaching the ombudsman by encouraging the contracting 

officer and supplier to come to mutual agreement, whenever possible, and 

encourages the use of negotiation to resolve differences before turning to 

formal ADR processes.27 The guidance encourages the use of ADR 

techniques such as mediation, conciliation, neutral evaluation, expert 

determination, adjudication, and arbitration prior to pursuing the 

ombudsman process. USPS’s guidance describes the process that the 

ombudsman will use when making its final and binding decisions and states 

that litigation should be considered as a method of last resort. 

USPS’s ombudsman, as it is currently structured, is not consistent with the 

core principles of independence, impartiality, confidentiality, or the role of 

the ombudsman as identified by leading ombudsman organizations. The 

inconsistencies include the following: 

• USPS’s ombudsman is not independent of, or impartial from, the Supply 

Management organization. The appointed ombudsman holds a position 

in USPS’s Supply Management organization, is appointed by the Vice 

President of Supply Management, reports to the Vice President of 

Supply Management, and continues to have other responsibilities within 

27The guidance states that informal negotiation, litigation, and the ombudsman procedures 

are not forms of ADR. 
Page 38 GAO-06-190 U.S. Postal Service

the Supply Management organization. Furthermore, the Vice President 

of Supply Management is the official who may make decisions to decline 

to accept or consider proposals. In contrast, both IBM’s and NASA’s 

ombudsmen, who handle purchasing-related disputes, report to 

someone outside of the procurement organization.

• USPS’s ombudsman makes final, binding decisions, which is 

inconsistent with the authority of an ombudsman in leading 

organizations. Officials from leading professional organizations stated 

that an ombudsman typically makes “recommendations” and works to 

facilitate negotiations and resolve issues and complaints. These officials 

stated that USPS’s current structure is more consistent with that of an 

arbitrator. One key difference between USPS’s and NASA’s ombudsman 

is that the decisions of NASA’s ombudsman are recommendations, while 

those of USPS’s are binding. 

• USPS’s ombudsman process does not promote confidentiality of the 

parties raising the dispute against USPS. Although the Final Rule 

provides that the ombudsman will protect confidential or privileged 

material, it does not protect the identity of the complainant. The Final 

Rule specifies that the ombudsman provides a copy of the disagreement 

to the contracting officer (the person who may make contract award 

decisions from which the dispute arises). Officials from leading 

professional organizations stated that ombudsman investigations should 

be conducted in a confidential manner to protect the identity of the 

person making the complaint against the decision-making contracting 

official to limit any future retribution.

The inconsistencies in USPS’s ombudsman from the principles and 

practices of leading organizations may have several consequences. For 

example, based on comments from experts and stakeholders we spoke 

with (1) suppliers may potentially feel reluctant to spend the resources to 

go through the ombudsman process or raise complaints against USPS; (2) 

suppliers may add additional costs into their initial bid submissions to 

cover the potential costs and risk associated with the ombudsman process, 

particularly because USPS has set its ombudsman method up as a formal, 

binding process; and/or (3) suppliers may lose confidence in the fairness 

and credibility of the process and eventually stop contracting with USPS, 

which could erode the supplier base. Officials from leading ombudsman 

organizations also voiced concerns about how the current structure and 

role of USPS’s ombudsman may create confusion and impede their 
Page 39 GAO-06-190 U.S. Postal Service

organizations’ attempts to ensure consistent, professional ombudsman’s 

standards across both public and private-sector entities. 

To address these inconsistencies, there are several options that USPS could 

consider. The first option is to revise its ombudsman regulations so that 

they comport with the leading principles and practices. USPS could change 

its regulatory provision so that the ombudsman would make 

recommendations rather than binding decisions. The recommendations of 

the ombudsman could then be reported to someone outside the purchasing 

organization who would make a final, binding agency decision. Under this 

option, USPS would also then need to revisit the regulatory provisions 

related to the basis for appeals of ombudsman decisions because the 

ombudsman would no longer be making the final agency decision. USPS 

could also consult with leading ombudsman organizations, such as the 

Coalition of Federal Ombudsman, to determine appropriate structure, 

standards, and training qualifications.

Another option would be for USPS to eliminate its current ombudsman 

position, determine who would make the final, binding agency decision, 

and make corresponding changes in its regulations and appeals provisions. 

USPS could also determine whether it wants to establish or continue to use 

other formal or informal dispute resolution mechanisms to reach its goal of 

handling disagreements in an expedited manner with finality. For example, 

Federal Aviation Administration (FAA) does not have an ombudsman as 

part of its dispute resolution process, but has instead established the Office 

of Dispute Resolution for Acquisition. This office encourages parties to 

mutually agree to the use of ADR mechanisms as the primary means of 

resolving bid protests and assigns an officer to facilitate these 

discussions.28 The head of this office also stated that he prefers more 

informal mechanisms such as neutral evaluation and mediation as opposed 

to more formal mechanisms such as binding arbitration because they are 

faster, less costly, and parties have more control of the outcome. This 

official also serves as the Chair of the Interagency Alternative Dispute 

Resolution Working Group and suggested that this working group would be

28Parties also have the option to submit their protest to a default adjudicative process that 

would result in a final agency decision, which can then be appealed to the federal court of 

jurisdiction.
Page 40 GAO-06-190 U.S. Postal Service

available to assist USPS and other federal entities in developing their 

dispute resolution processes. 29

Continued Oversight of 

USPS’s Implementation 

of Its New Regulations 

Is Needed

Continued oversight of USPS’s changes in the purchasing area is needed 

not just based on the ombudsman inconsistencies identified above but also 

due to other factors such as the uncertainty related to the issuance of 

USPS’s final guidance, the potential impact on suppliers, and USPS’s ability 

to achieve efficiencies under these new flexibilities while ensuring fair and 

consistent treatment of suppliers. As we previously discussed, we have 

concerns related to the credibility of USPS’s ombudsman and how its role 

and structure is inconsistent with the principles and practices of leading 

organizations. Leading organizations favor the use of an ombudsman as a 

neutral, third-party facilitator, while USPS’s is a final agency decision 

maker that focuses on best value decisions for USPS. We also have 

concerns related to the uncertainty surrounding the final guidance. USPS 

continues to delay the issuance of its final guidance, which we were told 

would be available in the fall 2005 and was later changed to early in 

calendar year 2006. Considering that the final guidance was not yet 

completed when the final rule was implemented, and that there have been 

additional delays since, uncertainties remain for both the supplier 

community and other interested stakeholders about the principles and 

practices that will guide future USPS purchasing decisions. 

This relatively short implementation period of these regulatory changes—

they have only been in place 7 months—creates additional uncertainties 

regarding the potential impact of these changes on USPS’s suppliers and 

the sufficiency of USPS’s accountability mechanisms for tracking and 

monitoring its performance in this area. USPS officials have acknowledged 

that the changes in USPS’s purchasing regulations could result in a 

decrease in the number of USPS suppliers and that the number of small, 

minority-, or women-owned businesses could be impacted by these 

changes. These officials also stated, however, that USPS’s contracting with 

small, minority-, and women-owned businesses have continually exceeded 

that of other federal agencies and that USPS’s draft guidance promotes 

supplier diversity and encourages the use of these businesses when issuing 

29This interagency group was established by the President under the authority created by the 

Administrative Dispute Resolution Act of 1996 to facilitate and encourage agency use of 

dispute resolution. Executive Order 12866; Administrative Dispute Resolution Act of 1996 

(ADRA), Pub. L. No. 104-320.
Page 41 GAO-06-190 U.S. Postal Service

certain contracts. Although we recognize USPS efforts in this area, our past 

reports have raised concerns about the sufficiency of USPS’s accountability 

mechanisms in this area. In 2004, we reported that USPS had difficulties in 

achieving its desired efficiencies for its bulk fuel program initiative, had 

unreliable data on the dollar amounts of small business contracts, and no 

longer included targets for contract dollars awarded to these businesses.30

We recommended that USPS focus attention on small business concerns in 

carrying out its supply chain management initiatives and develop targets to 

promote accountability in its small business contracting. At that time, 

USPS generally agreed with our recommendation but stated that it did not 

plan to establish small business targets at that time but would consider 

reestablishing targets for small business contracts if its achievements 

slipped. In 2003, we also reported that USPS did not meet its savings targets 

related to its office supply contract, and it was not accurately tracking 

small, minority-, and women-owned business participation.31 We 

recommended that USPS develop a plan that accurately and clearly reflects 

realistic contracting goals for small, women-, and minority-owned 

businesses. We recently discussed these reports with USPS officials who 

stated that USPS has made significant progress in achieving efficiencies in 

its supply chain initiatives since these reports were issued, particularly in 

tracking small, minority-, and women-owned participation, but they 

continue to disagree with our recommendation to establish targets because 

of their positive performance in this area and the difficulty in developing 

useful targets. We continue to believe that targets are necessary because 

without establishing targets and providing reliable information on 

performance goals and results related to USPS’s purchasing activities, 

including its contracts with small, minority-, and women-owned 

businesses, it will be difficult for stakeholders to hold USPS decision 

makers accountable for their actions or ensure that USPS (1) maintains a 

diversified supplier base, (2) achieves its desired efficiencies, and (3) 

implements its revised regulations in a manner consistent with the 

principles of postal and procurement reform. 

Concerns also remain about the use of ADR mechanisms in the purchasing 

area, given that they were available under the previous regulations by 

rarely used. Although USPS encourages the use of ADR as an effective way 

to understand, address, and resolve disagreements, the head of Supply 

30GAO-04-540.

31GAO-03-230.
Page 42 GAO-06-190 U.S. Postal Service

Management has stated that past USPS efforts in this area did not gain 

much traction. Considering the increased focus on ADR under the new 

rule—the rule stated that any party disagreeing with a USPS decision must 

consider the use of ADR to resolve particular disagreement regardless of 

the nature of the disagreement or when it occurs during the purchasing 

process—it will be important for these ADR mechanisms to be effectively 

implemented to have a credible dispute resolution process. 

Proposed legislation and oversight mechanisms by Congress have also 

identified issues related to how USPS can achieve efficiencies by taking 

advantage of increased flexibility, while at the same time ensuring fair and 

consistent treatment of suppliers. In the legislative arena, we have 

mentioned that pending postal reform bills include provisions related to 

USPS’s purchasing activities. Specifically, the Senate’s bill, S. 662, states 

that USPS should implement commercial best practices to achieve greater 

efficiency and cost savings in a manner that is compatible with the fair and 

consistent treatment of suppliers and contractors. Further, H.R. 22, the 

House postal reform bill, includes a requirement that USPS’s Board of 

Governors submit a report to the President and the Congress concerning 

the number and value of contracts and subcontracts USPS has entered into 

with women, minorities, and small businesses. Congress’ oversight 

mechanisms include annual reports from USPS, such as its annual 

operations report, the Comprehensive Statement on Postal Operations, 

which provide information related to USPS’s supply management activities. 

The 2004 Comprehensive Statement reported that USPS’s supply 

management activities had achieved $1.4 billion in cost savings, reductions, 

avoidances, and revenue since fiscal year 2000, discussed how cost 

efficiencies were achieved, described key initiatives in this area, and 

discussed its supplier diversity achievements and contract commitments. 

USPS is also required to report to the Senate Committee on Homeland 

Security and Governmental Affairs and the House Committee on 

Government Reform on the actions it plans to take to respond to our 

recommendations within 60 days of the issuance. Finally, as another 

oversight mechanism, Congress has asked us to report on USPS’s activities 

in this area as indicated by this report and other reports previously 

mentioned. 

Continued oversight will be needed to ensure that USPS successfully 

implements the recent changes to it purchasing regulations. The areas for 

oversight include
Page 43 GAO-06-190 U.S. Postal Service

• how USPS has addressed the inconsistencies in its ombudsman 

regulatory provisions to better reflect the principles and practices of 

leading organizations;

• when USPS will issue its final guidance, which details how it plans to 

implement the changes to its purchasing regulations;

• how USPS intends on ensuring accountability and supplier diversity by 

effectively tracking, monitoring, and reporting its contracting 

performance, including the impacts on small, minority-, and womenowned businesses; 

• the extent to which USPS is utilizing ADR methods for resolving bid 

protests; and 

• whether USPS has taken advantage of its increased flexibility and 

achieved greater efficiency while ensuring fair and consistent treatment 

of suppliers.

Conclusions USPS continues to face financial and operational challenges, and its 

procurement program represents a key part of its annual expenses. USPS 

has recognized opportunities to increase efficiencies in this area by making 

major changes to its purchasing regulations. Generally, USPS’s recent 

changes to its procurement regulations and draft guidance are consistent 

with the principles of postal and procurement reform and the leading 

practices in this area. However, the regulatory provision related to USPS’s 

new ombudsman process is not consistent with core principles related to 

independence and impartiality that were identified by various ombudsman 

authorities. Specifically, the reporting relationship is inconsistent because 

the ombudsman reports to the Vice President of Supply Management, the 

head of the purchasing organization, and the ombudsman’s decisions are 

final and binding, rather than recommendations. These inconsistencies 

may lead to a loss of supplier confidence in the fairness or credibility of 

USPS’s dispute resolution process. Also, the ombudsman organizations 

were concerned that the inconsistencies in USPS’s ombudsman regulatory 

provision would create confusion about the role of an ombudsman as an 

independent neutral facilitator. There are several options that USPS could 

consider to address the inconsistencies of its ombudsman provision. 
Page 44 GAO-06-190 U.S. Postal Service

Recommendations for 

Executive Action

We recommend that the Postmaster General take actions to address the 

inconsistencies in USPS’s ombudsman with the leading principles and 

practices related to independence and impartiality. USPS should consult 

with expert ombudsman and dispute resolution organizations to explore 

options related to its intended purpose for the ombudsman position and 

alternatives for changing this position to conform to leading principles and 

practices. If USPS wants to retain the ombudsman position, it should revise 

(1) the ombudsman’s reporting relationship to the purchasing organization 

so that it is independent and neutral; (2) the ombudsman’s role so that it 

makes recommendations rather than final, binding decisions; and (3) the 

appeals provision so that it applies to the final, binding agency decision 

rather than the ombudsman’s recommendation. Another alternative is that 

USPS could eliminate the ombudsman position and use other dispute 

resolution mechanisms, such as ADR. USPS could then designate another 

agency official to make the final, binding decision. For either alternative, 

USPS would need to change its regulations and guidance accordingly.

Agency Comments and 

Our Evaluation

We provided a draft of this report to USPS for its review and comment. 

USPS provided its comments in a letter from the Vice President, Supply 

Management, dated December 5, 2005. These comments are summarized 

below and included in appendix IV. USPS concurred with our finding that 

its regulatory changes, including its draft internal guidance, are generally 

consistent with key reform principles and practices of leading public and 

private-sector organizations. In its comments, USPS also reiterated that its 

new Supplying Principles and Practices will be issued early next year. 

Regarding our recommendations related to its new supplier ombudsman, 

USPS stated that it understood our concerns, and in keeping with our 

recommendations, would consult with appropriate ombudsman and 

dispute resolution organizations and reassess its ombudsman’s role and 

reporting relationship. Further, USPS stated that it would keep us informed 

of its progress and decisions related to its ombudsman. Changes to the 

ombudsman will help to ensure independence and impartiality in USPS’s 

dispute resolution process, and we will continue to monitor USPS’s actions 

related to this issue.

We are sending copies of this report to the Chairman and Ranking Minority 

Member of the House Committee on Government Reform, Ranking 

Minority Member of the Senate Committee on Homeland Security and 

Governmental Affairs, Senator Thomas R. Carper, the Postmaster General, 
Page 45 GAO-06-190 U.S. Postal Service

and other interested parties. We also will provide copies to others on 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov.

If you or your staff have any questions regarding this report, please contact 

me at siggerudk@gao.gov or by telephone at (202) 512-2834. Contact points 

for our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix V.

Sincerely yours,

Katherine Siggerud

Director, Physical Infrastructure Issues
Page 46 GAO-06-190 U.S. Postal Service

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

To describe the major changes to the U.S. Postal Service’s (USPS) 

purchasing regulations, we reviewed the Final Rule in the Federal Register

that was issued on April 19, 2005, as well as USPS’s proposed rule that was 

issued on March 24, 2004. To describe the stakeholder views of those 

changes, we reviewed all of the comments that were filed in response to 

the proposed rule, which included such suppliers as Northwest Airlines; 

Hewlett-Packard; Siemans Dematic Postal Automation, L.P.; and the 

National Star Route Mail Contractors’ Association. We also followed up 

with selected parties to discuss with them the comments their 

organizations provided on the proposed rule, including both large and 

small suppliers, as well as other legal representatives such as Wickwire, 

Gavin P.C., the American Bar Association, and Thompson Coburn LLP. We 

also spoke with selected stakeholders who did not directly provide formal 

comments, including various representatives of small business 

associations such as the National Small Business Association and the 

Association for Procurement Technical Assistance Centers. To describe 

USPS’s rationale for making these changes, we met with USPS officials and 

reviewed USPS’s purchasing manuals, circulars, and instructions, the 

preambles and regulatory case files for the proposed and Final Rule, 

USPS’s Comprehensive Statement on Postal Operations, and USPS’s 

purchasing information. We assessed the reliability of USPS data on 

contract spending for inconsistencies. In those cases where we found 

discrepancies, we worked with USPS to address those problems. We 

determined that the data were sufficiently reliable for our review.

In order to conduct an assessment of USPS’s purchasing changes, we 

needed to determine what information would be contained in USPS’s 

internal guidance, the Supplying Principles and Practices. As such, we 

requested a draft copy of this document from USPS, which provided it to us 

for use in our analysis. Then, to assess how USPS’s regulatory changes and 

its draft guidance reflect the principles of postal and procurement reform, 

we developed key principles of efficiency, flexibility, accountability, and 

fairness or social responsibility based on reviewing information from a 

variety of sources. These included our past work on postal reform and on 

procurement leading practices, which included reviewing the spend 

analysis purchasing efforts at various federal agencies (Departments of 

Defense, Veterans Affairs, Health and Human Services, Agriculture, Justice, 

and Transportation) as well as leading private organizations that were 

recognized for their acquisition services (IBM, ChevronTexaco, Bausch & 

Lomb, Delta Air Lines, and Dell). We also met with officials from the 

Institute for Supply Chain Management and Center for Strategic Supply 

Research, which are two leading procurement organizations. We also 
Appendix I

Objectives, Scope, and Methodology

Page 47 GAO-06-190 U.S. Postal Service

reviewed USPS’s Transformation Plan and its respective updates; USPS’s 

Supply Management 5-Year Strategic Plan; the President’s Commission’s 

report; OMB’s sourcing guidance, “Implementing Strategic Sourcing”; and 

proposed postal reform legislation. We also talked to various ombudsman 

experts from organizations such as the Coalition of Federal Ombudsman, 

the United States Ombudsman Association, the International Ombudsman 

Association, and the Interagency Alternative Dispute Resolution Working 

Group. Key members of these organizations serve as the ombudsman for 

various federal and state organizations including the National Institutes of 

Health, the State of Iowa, and the State of Hawaii. Representatives from 

these groups also provided the names of Coca-Cola and United 

Technologies Corporation as leading organizations that use ombudsman, 

with whom we also followed up. These experts also recommended that we 

consult the American Bar Association’s adopted resolution entitled 

“Standards for the Establishment and Operations of Ombuds Offices,” for 

leading principles that should be considered when implementing an 

ombudsman, which we reviewed and discussed this document with these 

experts. Our work was conducted from April 2005 to December 2005 in 

accordance with generally accepted government auditing standards.
Page 48 GAO-06-190 U.S. Postal Service

Appendix II

Selected Federal Laws Applicable to USPS 

Purchasing ApendxiI

In its draft Supplying Principles and Practices, the U.S. Postal Service 

(USPS) identified the following list of laws governing purchasing at USPS, 

which are either mandated in Title 39, as enacted or amended, or apply to 

USPS by their own terms (see table 4). The draft guidance states that the 

Supply Management organization must comply with these requirements in 

all activities. We did not conduct an independent assessment of USPS’s list 

or other laws which may apply to USPS, which was not within the scope of 

this review. 

In addition, USPS provided in its draft Supplying Principles and Practices a 

list of additional laws and executive orders, which are applicable to it, and 

may affect USPS purchasing. These include: the National Environmental 

Policy Act, the Interstate Commerce Act, the Resource Conservation and 

Recovery Act, and the Program Fraud and Civil Remedies Act. USPS also 

included a listing of federal laws that do not apply to its purchasing 

processes, including the Competition in Contracting Act, the Federal 

Acquisition Streamlining Act, Truth in Negotiations Act, and the 

Procurement Integrity Act.

Table 4: USPS Compilation of Selected Federal Laws That Apply to USPS Purchasing

Law, regulation, executive order, or 

policy Description

Laws mandated in Title 39 either as enacted or since amended

Randolph-Sheppard Act, 20 U.S.C. 107 et 

esq., made applicable by 39 U.S.C. 

410(b)(3)

Requires that licensed blind suppliers must be given priority for the operation of food 

vending services in USPS facilities.

Miller Act, 40 U.S.C. 270a-270f, made 

applicable by 39 U.S.C. 410(b)(4)(B)

Requires contract surety bonds on federal construction; contractor must post a performance 

bond and a labor and material payment bond.

Davis-Bacon Act, 40 U.S.C. 276a et seq., 

made applicable by 39 U.S.C. 410(b)(4)(C)

Requires that construction contracts over $2,000 contain a provision setting the minimum 

wages to be paid to all classes of laborers and mechanics working on the work site. Wage 

rates determined by Secretary of Labor.

Copeland Anti-Kickback Act, 18 U.S.C. 874 

and 41 U.S.C. 276(c), made applicable by 

39 U.S.C. 410(b)(4)(D)

Applies to any construction contract over $2,000 (subject to the Davis Bacon Act) and 

makes it unlawful to force laborers or mechanics to give up any part of their compensation 

except for permissible deductions such as taxes and union dues.

Contract Work Hours and Safety 

Standards Act, 40 U.S.C. 327-333, made 

applicable by 39 U.S.C. 410(b)(4)(E)

Requires that certain contracts contain a clause specifying that no laborer or mechanic 

doing any work under the contract may be required or permitted to work more than 40 hours 

per work week unless paid time and a half for all overtime hours. 

Walsh Healey Public Contracts Act, 41 

U.S.C. 35-45, made applicable by 39 

U.S.C. 410(b)(5)(A)

Applies to indefinite delivery contracts and ordering agreements if the aggregate amount of 

all orders is expected to exceed $10,000 during the year following award. Requires these 

contracts to incorporate certain requirements by reference.
Appendix II

Selected Federal Laws Applicable to USPS 

Purchasing

Page 49 GAO-06-190 U.S. Postal Service

Source: USPS.

Service Contract Act, Pub. L. No. 89-286, 

41 U.S.C. 351 et seq., made applicable by 

39 U.S.C. 410(b)(5)(B)

Applies to any contract whose principal purpose is to provide services to be performed by 

service employees. Employees working under a service contract must be paid no less than 

the minimum wage specified by the Fair Labor Standards Act.

Prohibition on Convict Labor, 39 U.S.C. 

2201

Requires USPS not contract for supplies manufactured by convict labor except from Federal 

Prison Industries, Inc.

Architectural Barriers Act, 42 U.S.C. 

Chapter 51, made applicable by 39 U.S.C. 

410(b)(8)

Requires that postal buildings are accessible to the physically handicapped.

Prompt Payment Act, 31 U.S.C. Chapter 

39, made applicable by 39 U.S.C. 

410(b)(9)

Provides incentives for USPS to pay its bills on time to suppliers. Requires the head of an 

agency acquiring property or service who does not pay for each complete delivered item by 

the required payment date to pay an interest penalty on the amount of the payment due.

Freedom of Information Act, 5 U.S.C. 552 

made applicable by 39 U.S.C. 410(b)(1)

Provides the public with a right to access to records maintained by federal agencies.

The Privacy Act of 1974, 5 U.S.C. 552a 

made applicable by 39 U.S.C. 410(b)(1)

Provides privacy protections for personal information maintained by federal agencies. 

Provides that, when an agency maintains a system of records with such information, it must 

publish a notice describing that system in the Federal Register and must provide information 

on how that information is collected, used, disclosed, stored, and discarded. Includes how 

individuals can obtain access to and amend their personal information. 

Laws applied to USPS by their own terms

Contract Disputes Act, 41 U.S.C. 601 et 

seq.

Creates comprehensive system for resolving disputes between supplier and supply 

management relating to performance of most purchase contracts. The trigger point is the 

contracting officer’s decision. Claims of the supplier and USPS must be the subject of a 

contract officer’s decision. Supplier may appeal to appropriate agency board of contract 

appeals or file suit in U.S. Court of Federal Claims. Supplier and USPS can appeal a 

decision of a board of contract appeals or the federal court to the U.S. Court of Appeals for 

the Federal Circuit. Provisions of the Contract Disputes Act with regard to administrative 

resolution of disputes made by the Administrative Dispute Resolution Act (ADRA) are 

applicable to USPS, although other portions of the ADRA codified in 28 U.S.C. are not. 

Administrative Dispute Resolution Act of 

1996 (ADRA), 28 U.S.C. 1491(b)

Requires USPS to have policies that address the use of alternative dispute resolution (ADR) 

techniques and to appoint a Dispute Resolution Specialist. Requires USPS to examine use 

of ADR in connection with rulemakings, formal and informal adjudications, enforcement 

actions, issuing and revoking licenses or permits, contract administration, litigation, or other 

actions.

Vietnam Era Veterans Readjustment 

Assistance Act of 1972, 38 U.S.C. 4212

Requires suppliers to take affirmative action to employ and advance in employment qualified 

special disabled veterans, veterans of the Vietnam era, and other eligible veterans without 

discrimination based on their disability or veterans’ status, and list all employment openings 

with appropriate local employment services.

Javits-Wagner-O’Day Act, 41 U.S.C. 46-48 Requires that USPS and other federal agencies purchase certain supplies and services 

from qualified workshops which employ people who are blind or severely disabled.

Rehabilitation Act of 1973, 29 U.S.C. 702 

et seq. including Section 508

Requires suppliers to take affirmative action to employ and advance qualified individuals 

without discrimination as to their physical or mental handicaps. 

(Continued From Previous Page)

Law, regulation, executive order, or 

policy Description
Page 50 GAO-06-190 U.S. Postal Service

Appendix III

USPS Revised Purchasing Regulations—

Provisions Governing the Acquisition of 

Goods and Services ApendxiI

Citation in the C.F.R. Description and changes

601.100 – Purchasing 

policy

Acquiring property and services in accordance with 39 U.S.C. 410 and all other applicable laws enacted by 

Congress.

Previously, 601.100 incorporated, by reference, the provisions of the Purchasing Manual.

601.101 – Effective date Regulations are effective May 19, 2005.

601.102 – Revocation of 

prior purchasing 

regulations

Revokes all previous purchasing regulations including the Purchasing Manual and procurement handbooks, 

circulars and instructions, and all are superseded by the regulations below.

601.103 – Applicability 

and coverage

Regulations in this part apply to all USPS procurements of property and services (except real property).

Previously, this section set forth the contents of the Purchasing Manual, chapter by chapter.

601.104 – Postal 

purchasing authority

Lists who has the authority to bind USPS when entering into, modifying, or terminating contracts.

Previously, this section addressed amendments to the Purchasing Manual, stating that they would be 

incorporated by reference into this part of the C.F.R.

601.105 – Business 

relationships

States USPS’ expectation that it will be treated as a valued customer. 

Previously, there was no equivalent section in the C.F.R. However, in the Purchasing Manual, which had the 

force and effect of law, the regulations provided a reciprocal USPS commitment to fair treatment of its 

suppliers throughout the Purchasing Manual.

601.106 – Declining to 

accept or consider 

proposals

USPS has the right to decline to accept/consider proposals from entities failing to meet reasonable business 

expectations for a specific or indefinite time.

Previously, there was no equivalent section in the C.F.R. or in the Purchasing Manual.

601.107 – Initial 

disagreement resolution

Provisions regarding alternative dispute resolution procedures, which are encouraged, but are not required, 

and are not mandatory of the supplier or the contracting officer. Protests can be lodged with contracting officer 

or with ombudsman if not resolved.

Previously, was titled Protests under the Supplier Relations chapter in the Purchasing Manual, and under prior 

bid protest procedures, a protest could also be filed with USPS’s General Counsel in lieu of the contracting 

officer.

601.108 – Ombudsman 

disagreement resolution

Establishes ombudsman procedure to resolve disagreements that cannot be resolved with contracting officers 

or management. The ombudsman will focus on best value considerations and business decisions made by the 

contracting officer to determine which supplier should be awarded a contract. Ombudsman decision is final 

and binding except in cases of fraud or misconduct.

Previously, there was no equivalent section in either the C.F.R. or in the Purchasing Manual.

601.109 – Contract 

claims and disputes

Provisions for implementing the Contract Disputes Act.

Previously, was titled Claims and Disputes under the Contract Administration chapter of the Purchasing 

Manual.

601.110 – Payment of 

claims

Claims determined in a final decision should be paid promptly to the supplier, and any board or court decisions 

favorable to the supplier must be implemented promptly. 

No change from prior regulations.
Appendix III

USPS Revised Purchasing Regulations—

Provisions Governing the Acquisition of 

Goods and Services

Page 51 GAO-06-190 U.S. Postal Service

Source: USPS.

601.111 – Interest on 

claim amounts

Interest on amount due on a supplier’s claim must be paid from the date the contracting officer received the 

claims, or from the date payment would otherwise be due, until the date of the payment.

Previously, was titled Claims and Disputes under the Contract Administration chapter of the Purchasing

Manual, and there were no changes other than deleting reference to a Purchasing Manual appendix.

601.112 – Review of 

adverse decisions

Any party can seek review of an adverse decision of the Board of Contract Appeals in the Court of Appeals for 

the Federal Circuit or any other appropriate forum.

Previously, was titled Claims and Disputes under the Contract Administration chapter of the Purchasing 

Manual, and stated that USPS could seek review, if the Vice President of Supply Management with 

concurrence of USPS’s General Counsel, decided to pursue the appeal.

601.113 – Debarment, 

suspension, and 

ineligibility

Provisions for causes for, mitigating factors of, and period of debarment and suspension.

Previously, was titled Supplier Debarment, Suspension, and Ineligibility under the Supplier Relations chapter 

in the Purchasing Manual, and changes include: (1) requiring the vice president of Supply Management to 

concur with USPS’s General Counsel before making a decision to debar a supplier, or before initiating a 

debarment proceeding, or deciding whether debarment is merited based on a conviction or civil judgment; (2) 

providing for procedures when the Vice President of Supply Management proposes a debarment when a 

supplier is already debarred by another government agency; (3) giving additional causes for debarment; and 

(4) period of suspension increased to 1 year from 6 months. 

(Continued From Previous Page)

Citation in the C.F.R. Description and changes
Page 52 GAO-06-190 U.S. Postal Service

Appendix IV

Comments from the U.S. Postal Service ApendxiIV
Page 53 GAO-06-190 U.S. Postal Service

Appendix V

GAO Contact and Staff Acknowledgments ApendxiV

GAO Contact Katherine Siggerud (202) 512-2834

Staff 

Acknowledgments

In addition to the individual named above, Teresa Anderson, Joshua 

Bartzen, Tonnye ConnerWhite, Micah McMillan, Edda Emmanuelli-Perez, 

Collin Fallon, Kathy Gilhooly, Brandon Haller, Carolyn Kirby, and Anthony 

Lofaro made key contributions to this report. 

(542053)
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